Cleveland-Cliffs (NYSE:CLF) shares have lost nearly 30% of their value so far this year as recession fears dragged steel prices below $900/ton from $1,500 earlier this year, perhaps with further declines still ahead, but Barron’s believes the stock can weather the storm.
One reason is demand for steel from the auto industry: Inventories at car dealers have dropped to just 22 days currently, but this implies a continued strong demand for steel to build new vehicles as inventory gets rebuilt, says Larry McDonald of Bear Traps Report.
A risk to this thesis is that high gas prices could cause Americans to switch to sedans from SUVs, which use 20% more steel, but B. Riley analyst Lucas Pipes believes consumer substitution with electric vehicles of similar size, as opposed to switching to a smaller vehicle style, could mitigate the risk.
McDonald thinks demand for steel will reach record levels over the next 10 years, even if the near-term drop in steel prices has lowered earnings estimates for Cleveland-Cliffs (CLF), but he says “we are looking across the valley to the next up cycle.”
Cleveland-Cliffs (CLF) is trading at attractive prices following its recent selloff, allowing investors to start buying for the long-term,” Leo Nelissen writes in a bullish analysis newly published on Seeking Alpha.
