We are changing our recommendation on Companhia Vale do Rio Doce (RIO) from Buy to Hold. RIO reported very positive numbers for the second and third quarters 2008. However, its share price has been under considerable pressure due to a more challenging international economic environment for cyclical industries like mining.

Vale do Rio Doce's current valuation already discounts a very strong worldwide economic recession. At this point, however, it is not clear how long this difficult economic environment will last.

All considered, we believe the current valuation is very attractive, however it is time for a more cautious outlook on the mining sector, at least until the renegotiation of the iron ore prices for 2009, thus we are rating RIO as a Hold.

We expect the stock to trade closer to the industry median in the short term. Accordingly, applying a P/E multiple around 4x our 2008 EPS estimate, closer to the industry median, we arrive at a target price of $11.75 per share.