Cliffs Natural Resources (CLF) is a tough call because you have two dynamics pressing against each other like tectonic plates. The current macro environment is difficult, to say the least. The company has missed the Street in each of the last three earnings periods and next year’s earnings consensus is all the way down to $5.97 from $6.28 a week ago, and $10.14 three months earlier.
We get it…things are tough in the coal arena, but more so for thermal coal than metallurgical coal. This company has one thermal mine. The rest are iron-ore and metallurgical in the United States, Canada and Brazil. There will be tons of opportunity in Asia and South America and the United States should get better even at a measured pace.
The stock is changing hands at a 6 P/E and just 80% of sales and book value, plus only one-time enterprise value to revenue. In other words, the stock is cheap!
I would like to see more insider buying but the chart is in a reverse head and shoulders formation and a close above $41 clears the 200-day moving average. From there I see little technical resistance until north of $50.
Over the last three weeks there has been an avalanche of brokerage downgrades yet the stock remains firm. Today it’s on track to trade 50% more volume than normal. There are lingering rumors out there of a takeover and I think there is validity to it, but not sure if something like that happens soon or down the road.
I do know this stock is cheap despite its tough business backdrop these days.
Charles Payne, a FOX Business contributor, is president of Wall Street Strategies. At the time this article was published he, his firm and/or his family did not own securities in Cliffs Natural.