Can Cliffs Natural Resources Continue Moving Higher?

Cliffs Natural Resources (CLF) has been one of the most volatile stocks over the last few years. The stock lost almost 3/4th of its entire value in 2015. However, 2016 is a completely different story as the stock is up over 400% from its year to date lows.

Recently, Cliffs Natural Resources posted its second quarter results. The company shared earnings per share of $0.07, surpassing the estimates by $0.05. Furthermore, the company reported revenue of $496.2 million, $31.39 million more than the estimates.

After numerous years of falling steel prices and stress from imported steel, the domestic steel market is beginning to grow.
And this is the reason behind Cliffs Natural Resources’ success. After a long time, the company posted a clean income statement. Moreover, the company did not have any achievements from quenching debt or from sales of superseded operations.

On the other hand, the company is also rectifying its mistakes. Its last acquisition of Consolidated Thompson at $5 billion turned out to be a big mistake. Since then, the company has been gradually unwinding those positions via divestments.
Can Cliffs Natural Resources Continue Moving Higher?
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Apart from the elevated price at the entire peak of the commodities market, another reason for the failure of the acquisition was that it did not support the company’s core assets.

Moving on, Cliffs Natural Resources is also interested in taking over the Essar if the state permits the mining license. If the deal goes through, this would provide an opportunity for the company to escalate its production where it knows how to function proficiently.

Apart from this, the robust rising demand of Chinese iron ore is another reason why the stock could continue moving higher. Export volumes at Australian’s port Hedland hit record levels in the previous month. This is very significant for the company as its Australian mining complex has been a barb in its side for many years now as sales margins have been razor-thin.

Conclusion

After years of struggling, things are finally looking good for Cliffs Natural Resources. The company has been a stellar performer this year and, as mentioned above, a combination of several tailwinds can drive the price much higher from current levels.

The company is rectifying its mistakes and is also looking at other growth avenues. Given that the commodity market has finally stabilized, Cliffs Natural Resources’ may keep testing its 52-week highs going forward. Consequently, I think the stock is a buy.
Published on Aug 18, 2016
By Prudent Investor

Copyrighted 2016. Content published with author's permission.

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