Cliffs Natural Resources Inc (NYSE:CLF) is an ugly stock that has suffered mightily since 2011. How mightily? Consider five years ago, CLF stock traded for about $100 and now it trades for about $4 after a roughly 40% surge in shares in morning trading.
But according to analysts at JPMorgan Chase, the worst may be over for Cliffs Natural Resources. CLF stock was just raised from “neutral” to “overweight” at the investment bank, with a $7 price target.
That would deliver a doubler to investors who buy now — presuming that target is reached — and it’s unsurprising that shares have responded strongly as a result.
The question is — if today’s trend holds — should investors dive in and ride the momentum in CLF stock? Or should they consider waiting this out?
CLF Stock: The Pros and Cons
Well, the good news is that Cliffs swung to a profit in its most recent earnings report at the end of April. After losing money for two straight years, this proved an encouraging sign for investors. But interestingly enough, we saw CLF stock gap up in April from under $3 a share to over $5 based on anticipation of earnings and, of course, the actual numbers themselves.
But then CLF gave it all back. And just a few trading days ago, it was back at $3.
The truth is, investors don’t know what to think. Sure, profits were back … but revenues fell year-over-year. Sure, revenue beat expectations despite the slump … but Wall Street predicts another top-line decline for this year as well as for fiscal 2017.
The company backed its sales volume expectations for 2016.
Doesn’t sound like a stock that has it figured out just yet.
Swing-trading the momentum is particularly troublesome after a mammoth surge like this, because it’s not uncommon for a company to roll back fairly significantly after a pop like this. And remember, CLF is regularly at the top of short-interest tip sheets with some 35% of shares held by bearish traders — so a lot of this pop could simply be short covering and not a sign of true buyer demand.
Either way, you’re taking the tiger by the tail in Cliffs Natural Resources. So whether you choose to play the upside in CLF stock or continue to bet against the battered miner, make sure you’re disciplined and use stops.
Perhaps the one thing we can be certain of in Cliffs is a whole lot of volatility.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
