From Fidelity
Ticker: CLF
Stock performance year-to-date: -41%
Price-earnings ratio: 8
Dividend yield: 6.8%
Cliffs is one of the world’s largest producers of iron ore, a key raw ingredient in steel. Prices for iron ore collapsed this year as China — the world’s largest steel consumer — sharply cut demand. This has decimated Cliffs’ stock, which is down more than 40% this year, including a 10% plunge after the company missed third-quarter earnings forecasts.
Yet some analysts view the sell-off in Cliffs as a buying opportunity. The third-quarter results were a “lagging indicator” that reflect the weakness in iron ore prices and demand over the past few months, according to BMO Capital Markets analyst Tony Robson. But iron ore prices have recovered since then, with China importing a “very strong” 65 million tons in August.
The Chinese government recently announced the approval of 25 new subway lines and 13 highway projects. Longer term, China has announced more than $1.3 trillion in infrastructure projects through 2020, supporting demand for iron ore and steel.
One risk is that Cliffs may slash its dividend if iron ore prices weaken and cash flows don’t improve. Investors may already be anticipating a dividend cut, though, based on the stock’s declines. While the stock is likely to be volatile and near-term earnings forecasts may decline, Robson figures it’s worth around $50 a share based on the long-term value of Cliffs’ mining assets and factoring in no gains in iron ore prices.
