It would seem that the shares of at least two steel producers, in particular, are trading in a way that gives the impression that investors truly feel that the robust earnings that the firms have shown will not continue in the near future. Additionally, the discount the shares have seen this year seems to be pricing in a disaster yet to hit the markets.
Cleveland-Cliffs (NYSE: CLF)
Cleveland-Cliffs is an integrated steel producer with a shareholder-focused CEO in Lourenco Goncalves, who improved the company’s efficiency and transformed it into the North American steel giant that it is today. Revenue for the company skyrocketed to $6 billion, an increase of 50% year-on-year (YoY), beating expectations by $570 million. Similarly, earning-per-share (EPS) was $1.71, beating expectations by $0.22. In the meantime, since the end of April, the company’s shares have been in a downward momentum with unusual trading volume spikes. Now, shares are below all daily Simple Moving Averages (SMAs), trading between the $18 and $15 range. Similarly, analysts rate the shares a moderate buy, predicting that the average next 12 months price could reach $32.71, 99.94% higher than the last trading price of $16.36.
U.S. Steel (NYSE: X)
Over the past nine years, this company has seemingly reinvented itself, reducing capacity and focusing on delivering diversified steel making utilizing Electric-Arc-Furnace (EAF) mini-mills. In the same way as Cleveland-Cliff, U.S. Steel has also ‘forged’ its best earnings quarter, by posting revenue of $5.23 billion, an increase of 42.9% YoY. Despite posting such earning increases, the expectations were missed by $50 million; on the other hand, EPS was $3.05, a beat by $0.10. Similar to CLF, X shares lost their momentum at the end of April, trending down, to now trade well below all daily SMAs. Further, the shares are trading in a range between $21 and $18.5 on slightly increased trading volumes in June. Nevertheless, TipRanks’ analysts rate the shares a hold, predicting that in the next 12 months, the shares could reach an average price of $28.80, 48.15% higher than the current trading price of $19.44. More often than not, cheap stocks of solid businesses can offer upside potential and a margin of safety even if a ‘black swan’ event does not hit the business. Both of these companies basically qualify under this moniker, despite steel being a cyclical commodity and affecting the company prices. Investors however, need to understand their risk profile and stick with investing in niches they understand to get the best returns. Buy stocks now with Interactive Broker – the most advanced investment platform Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
