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Cleveland-Cliffs Stock: This Steelmaker’s a Steal at These Prices
Stock Analysis & Ideas

Cleveland-Cliffs Stock: This Steelmaker’s a Steal at These Prices

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Cleveland-Cliffs is trading at a very attractive valuation as there is good news among the data points. In addition, there is an electric vehicle angle that you might not have considered.

It can be risky to invest in commodities miners – make no mistake about that. However, Cleveland-Cliffs (CLF) stock is trading at a price that should entice value seekers, even if they don’t have nerves of steel. I am bullish on Cleveland-Cliffs stock.

Cleveland-Cliffs is a North American steel producer. The company also has interests in iron ore, but steelmaking is what Cleveland-Cliffs is known for. Indeed, this company is one of the main reasons Cleveland is famous for hiring steelworkers.

It’s awfully difficult to invest in steel directly. After all, who has room in their house to store tons of steel? Some folks prefer to trade futures contracts, but you can also get direct exposure to America’s steel industry through Cleveland-Cliffs stock.

It’s a business that’s been around since 1847, and from time to time, the stock trades at an absurdly low price. Right now could be one of those times, so let’s investigate and see what’s been going on with this steel-market icon.

Only Invest in Cleveland-Cliffs If You’re Bullish on Steel

When it comes to Cleveland-Cliffs stock, the investors are betting on a company, but that’s not all. They’re also wagering on a comeback in the steel price, which is certainly not guaranteed.

Steel, and commodities in general, have been under pressure lately. There are a couple of main reasons for this. First, some investors are concerned about the possibility of an imminent recession. If the economy slows down, there will be less demand for construction and, therefore, less need for steel.

The second contributing factor is an unusually strong U.S. dollar. This might not intuitively make sense, but even though inflation is high, the dollar has been strong lately, especially against other world currencies and against commodities in general. This has created a headwind for steel bulls during the past few months.

These factors, along with supply-chain constraints, should be kept in mind as we investigate Cleveland-Cliffs’ financial performance. Considering the company’s challenges, Cleveland-Cliffs’ results have been impressive. The point here is that investing in Cleveland-Cliffs stocks means that you shouldn’t expect an imminent economic meltdown or continued strength in the U.S. dollar.

From a value seeker’s perspective, those issues have put negative pressure on Cleveland-Cliffs stock to the point where it’s almost irresistible. Believe it or not, Cleveland-Cliffs now has a trailing 12-month P/E ratio of 2.64. Hence, the share price is easily justified by the company’s earnings. Don’t expect Cleveland-Cliffs stock to be this cheap for too much longer, as bargains like this tend to get scooped up by institutional investors.

Growing Revenue and an EV Angle to Consider

Not long ago, Cleveland-Cliffs reminded investors of the company’s status as a premier steel producer when it reported excellent revenue growth. Along with that, Cleveland-Cliffs’ conference call highlighted the company’s role in advancing the electric vehicle (EV) revolution.

So, did Cleveland-Cliffs beat or miss the analyst community’s expectations? On the top line, it was definitely a beat, as Cleveland-Cliffs generated $6.3 billion in second-quarter 2022 revenue. This result surpassed the prior-year quarter’s $5 billion as well as Wall Street’s consensus estimate of roughly $6.1 billion.

This isn’t to suggest that the company had a perfect quarter by any means. As it turned out, Cleveland-Cliffs posted adjusted EPS of $1.31, missing the analyst consensus estimate of $1.34. That’s not a very wide miss, though.

Besides, the $1.31 per share factored in a number of one-time charges, which added up to 18 cents per share. In the prior-year second quarter, Cleveland-Cliffs earned $1.33 per share, so everything seems to be on an even keel.

To sum it up, the company beat on the top line and was almost in line on the bottom line. Just imagine how much better Cleveland-Cliffs could do if the dollar weakens.

Then, there’s the EV angle to think about. Regardless of the dollar’s strength, steel could catch a bid as the EV movement progresses. That’s because there’s a direct connection between steel and EVs.

As Cleveland-Cliffs President and CEO Lourenco Goncalves explained in a conference call, his company is making “a $30 billion investment to bring back Zanesville mill to produce more NOES, non-oriented electrical steel.” Moreover, that type of steel is “the one that goes on the engines of the electric vehicles.”

There’s no denying that Goncalves and Cleveland-Cliffs are working hand-in-hand with major U.S. automakers to advance the EV movement. The CEO emphatically declared, “They are going toward electric vehicles. And we are working with them to go toward that.”

Wall Street’s Take on CLF

Turning to Wall Street, CLF has a Moderate Buy consensus rating based on five Buys and four Holds assigned in the past three months. The average Cleveland-Cliffs price target is $26.88, implying 65.6% upside potential.

Cleveland-Cliffs Stock is Cheap and an Unexpected EV Investment 

Did you ever imagine that a steelmaker could be part of the greater EV transition? It’s possible, and it’s happening right now, with U.S. automotive giants and Cleveland-Cliffs working together toward a vision of more EVs on the roadways. Plenty of steel will be needed to make this happen. In the meantime, Cleveland-Cliffs stock is ridiculously cheap, and the company is growing its revenue.

Therefore, don’t hesitate to add Cleveland-Cliffs to your watch list, not only as a commodities-market asset but as an EV investment as well.

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