Even After A 135% Rally, Cleveland-Cliffs Stock Looks Undervalued

Cleveland-Cliffs stock (NYSE: CLF) has seen an impressive rise of 135% in the last six months and now trades at $20 per share. After the stock saw a sharp fall in early 2020 with the outbreak of the coronavirus pandemic leading to a drop in steel prices, the stock has rallied from $8.50 to $20 in the last six months. This rise was driven by a sharp recovery in the global steel prices during this time, as the gradual lifting of lockdowns has led to expectations of faster economic recovery and higher steel demand. Economic stimulus packages announced in the U.S. and other economies are also expected to aid the demand for steel from the construction and automobile sectors. Also, with the lifting of lockdowns, the company’s operations are getting back on track and shipments are likely to rise as supply constraints ease. Shipments will also receive a sharp boost in 2021 following the acquisition of ArcelorMittal’s U.S. operations in late 2020. That the steel industry is slowly getting back on track is clear from the rise in capacity utilization levels. The U.S. raw steel capacity utilization for the week ending 8th May 2021 was 78%, which is significantly higher than the 55.4% recorded in the prior year period, which indicates that there are strong signs of a rebound in activity in the steel sector. Additionally, global iron ore prices have also shot up from $120/ton to $220/ton in the last six months due to expectations of higher demand and stimulus packages.

But will CLF stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely? According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for CLF stock average close to 12.5% in the next three-month (63 trading days) period after experiencing a 135% rise over the previous six-month (126 trading days) period. Notably, though, the stock is likely to outperform the S&P500 over the six months, with an expected return which would be 8.4% higher compared than the S&P500.

But how would these numbers change if you are interested in holding CLF stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test CLF stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF CLF stock moved by -5% over five trading days, THEN over the next 21 trading days, CLF stock moves an average of 1 percent, which implies a return which is almost in line with that of the S&P500.

More importantly, there is 48% probability of a positive return over the next 21 trading days and 43% probability of a positive excess return after a -5% change over five trading days.

Some Fun Scenarios, FAQs & Making Sense of CLF Stock Movements:

Question 1: Is the average return for Cleveland-Cliffs stock higher after a drop?


Consider two situations,

Case 1: Cleveland-Cliffs stock drops by -5% or more in a week

Case 2: Cleveland-Cliffs stock rises by 5% or more in a week

Is the average return for Cleveland-Cliffs stock higher over the subsequent month after Case 1 or Case 2?

CLF stock fares better after Case 2, with an average return of 0.9% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 1.5% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Cleveland-Cliffs stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?


If you buy and hold Cleveland-Cliffs stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For CLF stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?


The average return after a rise is generally lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although CLF stock appears to be an exception to this general observation.

CLF’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Cleveland-Cliffs stock by changing the inputs in the charts above.

While CLF stock may have moved a lot, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Compass Minerals vs Southwest Gas shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.


See all Trefis Price Estimates and Download Trefis Data here

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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