Cleveland-Cliffs (NYSE:CLF) is having a very good 2021. Investors should be a happy bunch as well. Up until early August, CLF stock was on a roll with an 80% gain since the start of the year. Since then, shares have given back some of those gains. The slide hasn’t been a big one — CLF dropped from a close of $26.02 on Aug. 10 to its current price of $22.76 — but that’s been enough to scare off some investors.
With CLF dropping over 3% on Monday, is it time to take a pass on this stock, or does opportunity knock?
Recent developments have shaken the metals and mining sector lately. Specifically, there are reports that China’s faltering industrial output has led to a decline in global demand for iron ore. That, in turn, has led to a 40% decline in iron ore prices since mid-July.
However, in the case of Cleveland-Cliffs, I think the market over-reacted. In fact, at a roughly 14% discount from its early August high, CLF stock is currently a buying opportunity.
CLF Stock: Infrastructure Opportunity
Regardless of what’s going on in China, there is opportunity in America. As I wrote several weeks ago, the country is embarking on an infrastructure building boom. Everything from bridges to transit systems and railways requires steel as part of its construction. That’s a big opportunity for Cleveland-Cliffs, the country’s largest producer of flat-rolled steel — not to mention a slew of other steel products, including electrical steel, plate steel and tubular steel.
This infrastructure spending spree is not a short-term thing. It’s a project that is going to see building and repair go on for years. That bodes well for the long-term growth prospects of CLF stock.
Record Second Quarter Reflects Cleveland-Cliffs Momentum
When Cleveland-Cliffs reported its second-quarter earnings, the company set multiple records. Quarterly revenue of $5 billion was a record, quarterly net income of $795 million was a record and quarterly adjusted EBITDA of $1.4 billion also set a new record.
In 2020 — a terrible year with the pandemic playing spoiler — the company reported revenue of $1.5 billion in the first 6 months. In the first 6 months of 2021? Revenue has totaled $9.1 billion. That’s despite challenges in the auto sector, where the global chip shortage has affected vehicle production. Once that is addressed, auto makers are expected to be churning out new cars. CLF just so happens to be a major supplier of automotive-grade galvanized steel.
In other words, Cleveland-Cliffs has momentum.
Preventing Labor From Spoiling the Party
One factor that has the potential to derail the momentum of a company like Cleveland-Cliffs is labor strife. The steel industry is well-known for labor issues, and striking workers can cripple plants. That’s an issue that never seems to go away. In 2018, over 30,000 steel workers went on strike, impacting 25% of the country’s steel production.
Cleveland-Cliffs is working to make sure labor agreements are in place to avoid having production disrupted. In August, it signed a new 3-year contract with workers at its advanced Dearborn Works operations. That follows an April contract covering workers at its Mansfield Works plant. Other contracts were negotiated and signed in 2020.
As the demand for Cleveland-Cliff steel ramps up, the company will be able to focus on production. Having workers signed onto contracts that prevent labor disruption is also likely to be a competitive advantage for the company.
Analysts Are Still Onboard
One month ago, CLF stock was flying high. At the time, the Wall Street Journal was tracking 10 analysts with coverage of the stock. They rated CLF as “Overweight” with six of the analysts rating it as “Buy.” What has changed since then? Not much, regardless of concerns over issues like China’s softening demand for iron ore.
Despite an additional analyst being added and siding with the “Hold” crowd, at this point, that “Overweight” consensus remains. And with an average $29.59 price target, they’re expecting CLF stock to kick back into growth mode, continuing past August’s 2021 high close.
The Bottom Line on CLF Stock
Cleveland-Cliffs is well positioned to take advantage of big, long-lasting trends, including a massive U.S. infrastructure project. As a vertically integrated steelmaker, it’s insulated from the global ups-and-downs of iron ore prices. The company’s key production facilities are protected from labor action for 3 years or more. Its most recent quarter was a record-setter.
Add in the fact that CLF stock earns an A-rating in Portfolio Grader, and there’s a strong case to be made for taking advantage of its current weakness. Now is a good time to add CLF shares to your portfolio.
On the date of publication, Louis Navellier had a long position in CLF. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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