EDITOR’S NOTE:Due to technical issues, we were unable to release the Trade of the Day on Wednesday, Feb. 22. We apologize for the difficulty.
Cliffs Natural Resources Inc (NYSE:CLF) — On Jan. 25 I reviewed CLF saying that this pure-play iron-ore producer, despite its size (now mid-cap), “is one of the largest suppliers of iron ore pellets to the North American steel industry.” That review was the second since the Trade of the Day on Sept. 8 2016 when I suggested buying CLF at $6 with a target of $7.50.
In the fourth quarter, CLF stock buyers flocked to the stock, driving it to a high of almost $11 on Dec. 8. The rally followed a Standard & Poor’s increase in late November to a 12-month target of $11 from $9, citing “an improved outlook for higher steel demand.” The increase in demand had a strong impact on CLF’s earnings due to its unusually high financial leverage.
Then on Feb. 9, S&P Capital IQ issued an “Analyst Research Note” in which it maintained its “strong buy” and raised the price target again — this time by $6 to $18 and their 2017 earnings estimate by $1.03 to $1.93. They started their 2018 EPS at $2.
Following the run from the September buy point at $6, CLF consolidated between $9 and $11. Buyers responded to the new research analysts’ target, driving the stock through its December high to a new high at $12.37. Short-covering was cited for creating the demand, but S&P’s new target at $18 must have had an influence on the one-day decision by shorts that they had made an error of judgment.
Support now rests at $11.15, the close on the highest day of sales. The stock reversed from that line on Friday. Yesterday’s volume rose to normal as buyers emerged. MACD has confirmed a long-term positive trend, and connecting the highs of April and July (not shown) with the more recent highs renders a minimum target of $16.
As of this writing, Sam Collins owned shares of CLF stock.
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