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The Current Version Of Cleveland-Cliffs Is Lourenco Goncalves' Defining Masterpiece

Mar. 03, 2021 2:44 PM ETCleveland-Cliffs Inc. (CLF)BHP, BHPBF, BHPLF, CAT, DE, MT, NUE, PKX, RILY, RIO, STLD, VALE, X32 Comments


  • Cleveland-Cliffs is a stock that I have been covering publicly on Seeking Alpha since May 2016.
  • Shares of CLF have increased 385.8% since my initial publication date, outpacing the SPDR S&P 500 ETF, which has gained 87.5% over this time frame.
  • While Cleveland-Cliffs' common shares have done well on a percentage basis since their 2016 depths, they are still trailing the absolute performance of their mega-capitalization peers.
  • Fortunately, supply/demand fundamentals for steel are incredibly favorable, and this is going to lead to a super cycle boom in income and free cash flows for Cleveland-Cliffs.
  • With the benefit of hindsight, Lourenco Goncalves' transformation of Cleveland-Cliffs, including the acquisition of AK Steel and ArcelorMittal's U.S. operations near the bottom of the cycle, is going to be a defining masterpiece.
  • This idea was discussed in more depth with members of my private investing community, The Contrarian. Get started today »

If everybody indexed, the only word you could use is chaos, catastrophe… The markets would fail. - John Bogle, May 2017

Try to buy assets at a discount rather than earnings. Earnings can change dramatically in a short time. Usually, assets change slowly. One has to know much more about a company if one buys earnings. - Walter Schloss

(Source: With Permission From James Duckworth Photography)


On May 12, 2016, I published an article on Cleveland-Cliffs (NYSE:CLF) with the title, "Cliffs Natural Resources: Too Cheap To Ignore." With the benefit of time, the title proved appropriate, as Cleveland-Cliffs' common shares rose 385.8% from the date of publication through Tuesday, March 2nd, 2021's close, far outpacing SPDR S&P 500 ETF's (SPY) return, which was a gain of 87.5% over this same time frame.

(Source: Author's May 12, 2016 Public CLF Article)

Now, the ride has not always been smooth as the longer-term chart of CLF shares shows below.

(Source: Author, StockCharts.com)

Looking at the chart above, CLF shares actually approached their late 2015 and early 2016 lows in the spring of 2020, as the heart of the COVID-19 market-induced panic enveloped the markets, sparking fear of a global depression.

This heightened level of fear quickly abated, creating a truly unique risk/reward opportunity in Cleveland-Cliffs' shares, as well as in many downtrodden commodity producers, and frankly in the broader equity market in general.

The strange thing today is that even with Cleveland-Cliffs' shares markedly higher than both their 2016 and 2020 lows, there's still a tremendous amount of appreciation potential in shares, particularly given the developments in North American and global steel prices, and the timely acquisitions of AK Steel and ArcelorMittal's (MT) U.S. operations.

These acquisitions were spearheaded by Lourenco Goncalves' vision, which has completed transformed Cleveland-Cliffs from

The Contrarian

There is historic opportunity in the investment markets today.  I have spent thousands of hours analyzing the markets, looking for the best opportunities, looking to replicate what I have been able to accomplish in the past.  From my perspective, the opportunities in targeted out-of-favor equities today are every bit as big as the best opportunities in early 2016, and late 2008/early 2009.  For further perspective on these opportunities, consider a membership to The Contrarian, sign up here to join.

This article was written by

KCI Research Ltd. profile picture

KCI Research, aka Travis, has been a financial professional for over 20 years. Formerly a director of research at a mid-sized RIA, and one of four strategic investment decision makers at one of the largest RIA's in the United States, Travis founded his own boutique investment firm in February of 2009. He specializes in against grain investing backed by real-world wisdom and experience by targeting out-of-favor, contrarian investment opportunities.

Travis is the leader of the investment group The Contrarian where he shares premium research and uncovers investment gems hidden in plain sight. Travis shares an all weather portfolio for minimal volatility along with a concentrated best-ideas portfolio Learn More.

Analyst’s Disclosure: I am/we are long CLF, BHP, MT, RIO, STLD, VALE, X, AND SHORT SPY IN A LONG/SHORT PORTFOLIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Every investor's situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including a detailed review of the companies' SEC filings. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (32)

A great article. But how do you balance it with your earlier "Go to cash" article? seekingalpha.com/...

Are you holding a larger cash position than usual while also investing in commodities and other resilient sectors?
KCI Research Ltd. profile picture
@P. Forts

In a word, yes. Read the concluding section of the "Go to cash" articles, and then read the concluding section of my public articles going back in time.

That should provide some clues for positioning.

By the way, we are having a banner year, with our "Best Ideas Portfolio" up 36.8% through March 5th (it is up this week too) versus SPY's 2.6% YTD gain.

This comes after a 51.1% gain in this Portfolio in 2020, with SPY up 18.3%.

Since inception, which was December of 2015 for The Contrarian, we are way, way ahead of the broader market barometers.

Bought at 5.50 back in November and sold at $10. What an idiot. I hate that I will be buying back Monday after 50% spike lol. Oh well. I see this going to $30. Biden and the Dems will continue to spend. Look for a “build America back” stimulus soon. Industrials and oil is best way to hedge against runaway inflation that will soon follow
RickJensen profile picture
Never, ever, apologize for a profit. Especially a bagger.
There are two types of investors, those who left money on the table and those who will.
If integrated steel production means profitable business, then I recommend Bethlehem Steel, National Steel, Republic Steel, Youngstown Sheet & Tube, and Jones & Laughlin Steel.
RickJensen profile picture
Yes, you should judge a concept of all of the preceding failures. Especially those that were mismanaged and haphazard.
Then there's US Steel and ArcelorMittal.
It works, just because others failed is no excuse.
I agree with your assessment wholeheartedly and am very heavy into steel as a whole, but most heavy into CLF on the equity side of that steel super cycle I hope we're headed towards.

Lots and lots of long positions currently in place, LEAPs, mid-dated calls, shares, sold puts, etc. Keep up the great work!
dn4911 profile picture
Buy below 15 sell at 20. Wash, rinse, repeat
I think you need to hold a core position in CLF and buy and sell extra shares. Like you stated CLF stock does move back and forth. I see CLF going way above $20 in the next two years, but I just do not know exactly when this will occur.
RickJensen profile picture
I'm just the opposite. If you figure out early that you have a winner, swing for the cheap seats. That has left the "buy and sell" profit trade, in the dust. CLF @4, no way I'm going to sell that for a trade.
I look for long terms, load up the bus, and wait.
@RickJensen I like to trade a little bit for fun and keep some cash around for corrections. Several good things and several bad things weighing on the market now and I just do not have a good feel for the market direction for next 3 months.
Friday’s sell off (and maybe part of Thursday’s) was due to CLF moving from the Small Cap 600 to the Mid Cap 400, effective March 1. 100m shares trading hands on Friday was all the proof you need or the 16% gain WSFS had on announcement that it was being added to the Small Cap 600. Small Cap has been on fire and there are a number of funds tracking the Small Cap index that would need to sell CLF due to the change. The rebound Monday and Tuesday (and into today) was not surprising in this light.
Mbrot profile picture
We are watching history being made in the American steel industry.
Very informative article. Do you see LG making anymore acquisitions in the next two years or do you think he will concentrate on integrating and gaining synergies from the 3 companies and strengthening the balance sheet?
@PEAK AUTOS My uneducated opinion is that he'll never turn away deals at the right price. Did they not go into this at all on the earnings call? I think that's basically what he said if they did...
Bitzap profile picture
I got into CLF for LG's turnaround, with HBI/Toledo as a future prospect. I ended up with something much larger. Go Lourenço!
want to be a millionare in less than a year put 500 K in CLF ! About says it all soon the dividend will be back strong . Way to go Lornezo largest Iron Ore manufacturing company in the world and growing every hour
I agree with your conclusion on double in a year or so, although I don't think we'll see the dividend back anytime soon (have to deal with AM Preferreds first IIRC).
RickJensen profile picture
LG is simply amazing. If you met him on the street, you'd have no idea, that he is going to redefine the steel business. I came to CLF because of LG, and he has not done one thing to make me change my mind.
He's a little scary, because he has no filers and he doesn't limit himself. He maybe the only CEO in the US who is that way. And many of us stockholders love us some LG.
@RickJensen "He's a little scary, because he has no filers..." I assume you mean "filters". Not being afraid to speak your mind and challenge the status quo makes for great leaders. Just look at PRESIDENT Trump and his accomplishments!
RickJensen profile picture
@Pabst Thx, yes I meant filters.
Diamond-Hands profile picture
@Pabst wrote:

"Not being afraid to speak your mind and challenge the status quo makes for great leaders. Just look at PRESIDENT Trump and his accomplishments!"

Goodbye and good luck with your investments.
Krypto profile picture
I'm going to have to add to my holdings as well. It seems cheap in spite of the run-up over the last few years.
I thought CLF's LG was a pure play on the source of iron/steel but since has integrated vertically. I find it fascinating the many companies vertically integrate then break apart to focus. Not sure vertical integration is the best path although when things are good, it doesn't seem to matter.
Divvy should be reinstated soon.
@shakaka I doubt it will happen until next year.
@Will Sonnett to add. It won’t be necessary for SP movement. But a wipe of the debt will set up nicely for a plump divvy later
dn4911 profile picture
@shakaka no dividend allowed until he takes out the AM preferreds
Thanks once again. I used Friday's throw the baby out with the bathwater prices to add below 13.50. Should we revisit those prices, I will add further based on your write up today.
@rogermci As did I. I'd sold a bunch at 17 and change and bought back at 15+ and couldn't resist the bargains at about $13.50.
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