IBD 50 Stocks To Watch: Will Cleveland-Cliffs Break Out To New Highs After 842% Run?

Cleveland-Cliffs, featured in today’s IBD 50 Stocks To Watch, is getting close to a breakout amid high steel prices and heavy demand for materials.


Cleveland-Cliffs (CLF) is the largest flat-rolled steel producer in North America, after acquiring ArcelorMittal USA and AK Steel last year. That helped it transform from an iron ore miner.

The revamped company is poised to ride a resurgent car industry and overall manufacturing sector. President Joe Biden’s pending infrastructure plan is likely to be bullish for steelmakers because the administration has big plans to fix bridges and eliminate lead pipes in water supplies.

Late Thursday, Cleveland-Cliffs reported Q2 adjusted earnings that missed Wall Street targets but sales that beat views, according to Zacks Consensus Estimate. The stock slumped nearly 8% during Friday’s session before paring its loss to just 0.5%.

Net income, revenue and adjusted EBITDA were all quarterly records, reflecting the integration of ArcelorMittal USA and AK Steel. And the resurgent demand for steel remains strong across all sectors, President and CEO Lourenco Goncalves said on the earnings call.

Stocks To Watch: ‘Relentless Demand’

“Q4 2020 was supposed to be the peak for steel prices, then Q1 2021, and then again in Q2,” he said. “Well, we are in Q3 and the reality is, demand is relentless. Most of our customers are experiencing record profits and learning that higher prices are good for pretty much everyone in the supply chain.”

IBD Stock Checkup assigns Cleveland-Cliffs a 97 Composite Rating, which gives investors a quick way to gauge a stock’s key growth traits. That puts it in the top third of the 15-stock steel producers group, which includes three 99 Composite stocks: Nucor (NUE), Ternium (TX) and United States Steel (X).

A 65 Earnings Per Share Rating, part of the overall composite score, is lukewarm. It reflects declines in three of the past five years. Analysts expect profit to surge 999% to $5.68 a share this year, followed by a 42% dip in 2022.

On the technical side, a 97 Relative Strength Rating puts Cleveland among the top 3% of all stocks. It leads the group based on the RS Rating. The relative strength line, which compares a stock’s performance to the S&P 500, has turned higher. A move to new highs at or ahead of a potential breakout would be a bullish sign.

Building New Buy Points

The stock had been forming an ascending base with a 24.87 buy point, according to IBD MarketSmith chart analysis. It’s now looking more like a cup base, but could also be viewed as a double-bottom base. That would set up an earlier buy point at 23.55, or 10 cents above the high of the pattern’s middle peak.

Cleveland shares are up 50% this year. They surged as much as 842% from their March 2020 coronavirus lows to their June 10 high.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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