Should You Buy The Dip In Cleveland-Cliffs Stock?

CLF: Cleveland-Cliffs logo

After observing a strong rally from rising steel and iron ore prices, Cleveland-Cliffs stock (NYSE: CLF) has been in the midst of a correction the past two months. While the Russia-Ukraine war continues to cause volatility in global energy markets, EIA’s long-term forecasts for the Brent benchmark stand lower than current levels – indicating a possibility of a rise in discretionary spending in the coming years. Given Cleveland-Cliffs’ strong leading position in Automotive steel component sales in the U.S., its financials are likely to improve from rising demand. Trefis highlights the key factors leading to stock price change including revenue and valuation multiple in an interactive dashboard analysis, Why Cleveland-Cliffs Stock Moved?

Cleveland-Cliffs has transformed into a leading steel producer in the U.S.

In 2020, Cleveland-Cliffs acquired ArcelorMittal USA and AK Steel and transformed itself from an iron ore mining company to a vertically integrated steel producer. The company reported $20.4 billion in revenues and 16 million tons of sales in 2021. With a product portfolio including hot-rolled steel, cold-rolled steel, coated steel, stainless steel, and plates, the company caters to a wide customer base in the U.S. Per recent filings, the company’s exposure to Automotive, Infrastructure, Distribution, and Steel producer markets was 25%, 27%, 38%, and 10%, respectively. In 2020, North America consumed 124 million tons of steel and produced 101 million tons – making it a net importer. Given the underlying strength in demand and an uptick in steel prices – the company is likely to observe topline growth in the coming years.

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Key trends in automotive and infrastructure markets

Cleveland-Cliffs is the leading supplier of high-quality steel products to the automotive industry. In the last two years, the North American light vehicle production has remained flat at 13 million units – almost 3 million units less than the historical 10-year average. While the demand stood strong, production rates took a hit from the global semiconductor shortage and supply-chain issues. Shifting trends toward electric vehicles and large vehicle platforms are likely to assist automotive demand in the coming years. In 2021, the residential infrastructure market observed strong growth propelled by housing demand. While the non-residential sector reported a contraction, the increasing push for renewable energy is likely to add momentum to the sector. (related: Is Freeport-McMoRan Stock A Buy?)

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Returns May 2022
MTD [1]
YTD [1]
Total [2]
 CLF Return -15% 0% 159%
 S&P 500 Return -6% -18% 74%
 Trefis Multi-Strategy Portfolio -5% -21% 209%

[1] Month-to-date and year-to-date as of 5/22/2022
[2] Cumulative total returns since the end of 2016

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