With Auto Demand Likely To Revive, Is Cleveland-Cliffs Stock Attractive?

CLF: Cleveland-Cliffs logo

Cleveland-Cliffs stock (NYSE: CLF) has gained almost 11% over the last month, considerably outperforming the S&P 500 which has gained about 1% over the same period. There are a couple of factors driving the stock higher. Over the last few years, the company has transitioned from being a supplier of iron ore into a large integrated steel mill operator, which has given the company significant exposure to the automotive sector. Now production in the auto industry has been weighed down by supply chain constraints through the Covid-19 pandemic. However, there are signs that the component supply shortage is easing, and this could help drive auto production higher, helping suppliers such as Cleveland-Cliffs. Separately, the company just raised current spot rates for all its carbon steel hot rolled, cold rolled, and coated steel products by a minimum of $75 per ton and this could also be a sign of reviving demand from the auto market. Now to be sure, there are lingering concerns about the U.S. economy, considering that GDP has contracted over the last two quarters straight, with interest rates also on the rise. However, investors are likely to find CLF stock to be reasonably valued at current levels, considering that it trades at just about 4.5x consensus 2022 earnings and 6.8x 2023 earnings.

However, now that CLF stock has seen a gain of about 11% over the last month, will it continue its upward trajectory in the near term, or is a decline imminent? Going by historical performance, there is a 43% chance of a rise in CLF stock over the next monthOut of 693 instances in the last ten years that CLF stock saw a twenty-one-day rise of 11% or more, 298 of them resulted in the stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 298 out of 693, or a 43% chance of a rise in CLF stock over the coming month, implying a negative near-term outlook for the stock. See our analysis on CLF Stock Chance of A Rise for more details.

Calculation of ‘Event Probability’ and ‘Chance of Rise’ using last ten years data

  • After moving 5.3% or more over five days, the stock rose in the next five days on 49% of the occasions.
  • After moving -5% or more over ten days, the stock rose in the next ten days on 48% of the occasions
  • After moving 11% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 43% of the occasions.
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 Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 CLF Return 6% -14% 123%
 S&P 500 Return -2% -15% 81%
 Trefis Multi-Strategy Portfolio -2% -15% 239%

[1] Month-to-date and year-to-date as of 8/28/2022
[2] Cumulative total returns since the end of 2016

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