Entering text into the input field will update the search result below

CLF ready to jump

May 20, 2011 10:00 AM ETCLF
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
Cliffs Natural Resources Inc., a mining and natural resources company, produces iron ore pellets; lump and fines iron ore, and metallurgical coalCLF is the largest supplier of iron ore pellets to the North American steel industry but only 42% of revenues came from the United States in 2010CLF currently trades at a Trailing 12-month P/E of 8.6, and has a market cap of around 11.5B, which makes it a potential buyout target for a company looking to get access to the North American steel industry. CLF has a beta of 2.39, which means that it has historically moved 2.39% for every 1% move in its underlying index. This beta is higher than the S&P 500 due to the cyclical nature of CLFs business.
CLF is expected to earn 13.19 (EPS) in FY 2011, and 14.02 in FY 2012At its current price, CLF trades at a forward P/E of just below 7The 5-year growth rate is expected to be 27%, which gives CLF a PEG of 0.24CLF is 86% owned by institutions as of 12/31/2010Shown below are the largest institutional holders:
I believe CLF is a buy anywhere under $90 based on its historically cheap valuationCLFs average P/E since it has become profitable is 10By simply taking the historically average P/E times 2011 earnings I get a target price of $131.90A more intensive RULE #1 calculation returns a 10 year intrinsic value of 235.80, which I divide by 2 to account for risk involved in my calculationsStill, at any price under $117.90, CLF represents good long term valueI used a growth rate of 20% for these calculations, which I believe is attainable, especially over the next 5 years.    
From a technical standpoint, it appears to me that CLF may be nearing a short term bottomThe MACD and STOCH are showing divergenceThis is shown by the red lines on the chart belowThe green line represents short-term resistance, which CLF has just recently broken above on average (I prefer to see at least 1.5x daily avg volume for a true breakout) volumeIf CLF can get above the 50 DMA, it could retest the prior highs around 102.50I will be watching that level closely to determine if it has the strength to power through that resistanceI would consider selling it at that time if CLF cannot breakout above that level.        
There are two factors to keep an eye on that could negatively impact CLFThe first being the debt issues in EuropeThese issues could derail our current recovery and potentially drive us toward the dreaded double dip recession. The other factor is the recent strength of the US dollar, which is somewhat tied to Europes recent debt issuesIf the dollar continues to gain strength, CLF will have difficulty breaking to new highs

*Financial data sourced from Yahoo Finance.

Author is long CLF.



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.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.