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Should Value Investors Pick Cleveland-Cliffs (CLF) Stock Now?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Cleveland-Cliffs Inc. (CLF - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Cleveland-Cliffs has a trailing twelve months PE ratio of 12.5, as you can see in the chart below:
This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.7. If we focus on the long-term PE trend, Cleveland-Cliffs’ current PE level puts it below its midpoint over the past five years. Also, it is an improvement over the trend of negative earnings witnessed in 2016, where the PE ratio was in negative territory.
Further, the stock’s PE compares favorably with its industry’s trailing twelve months PE ratio, which stands at 37.3. At the very least, this indicates that the stock is undervalued right now, compared to its peers.
We should also point out that Cleveland-Cliffs has a forward PE ratio (price relative to this year’s earnings) of just 8 – considerably lower than the current level. So it is fair to say that a significantly more value-oriented path may be ahead for Cleveland-Cliffs stock in the near term.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Cleveland-Cliffs have a P/S ratio of about 0.9. This is a bit lower than the S&P 500 average, which comes in at 3.3x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Cleveland-Cliffs currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Cleveland-Cliffs a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 7.8, which is slightly better than the industry average of 8. Clearly, CLF is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cleveland-Cliffs might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of F. This gives CLF a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s earnings estimates have been mixed at best. The current quarter has seen no estimate go higher in the past sixty days compared to two lower, while the current year estimate has seen one upward and three downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has declined 3% in the past two months, while the current year estimate has moved higher by 1.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This mixed trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Cleveland-Cliffs is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 26% out of more than 250 industries) further supports the growth potential of the stock. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. Also, over the past three years the industry to which it belongs has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment and estimates to turn stable in this name first, but once that happens, this stock could be a compelling pick.
Wall Street’s Next Amazon
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Should Value Investors Pick Cleveland-Cliffs (CLF) Stock Now?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Cleveland-Cliffs Inc. (CLF - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Cleveland-Cliffs has a trailing twelve months PE ratio of 12.5, as you can see in the chart below:
This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.7. If we focus on the long-term PE trend, Cleveland-Cliffs’ current PE level puts it below its midpoint over the past five years. Also, it is an improvement over the trend of negative earnings witnessed in 2016, where the PE ratio was in negative territory.
Further, the stock’s PE compares favorably with its industry’s trailing twelve months PE ratio, which stands at 37.3. At the very least, this indicates that the stock is undervalued right now, compared to its peers.
We should also point out that Cleveland-Cliffs has a forward PE ratio (price relative to this year’s earnings) of just 8 – considerably lower than the current level. So it is fair to say that a significantly more value-oriented path may be ahead for Cleveland-Cliffs stock in the near term.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Cleveland-Cliffs have a P/S ratio of about 0.9. This is a bit lower than the S&P 500 average, which comes in at 3.3x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Cleveland-Cliffs currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Cleveland-Cliffs a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 7.8, which is slightly better than the industry average of 8. Clearly, CLF is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cleveland-Cliffs might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of F. This gives CLF a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s earnings estimates have been mixed at best. The current quarter has seen no estimate go higher in the past sixty days compared to two lower, while the current year estimate has seen one upward and three downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has declined 3% in the past two months, while the current year estimate has moved higher by 1.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Cliffs Natural Resources Inc. Price and Consensus
Cliffs Natural Resources Inc. Price and Consensus | Cliffs Natural Resources Inc. Quote
This mixed trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Cleveland-Cliffs is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 26% out of more than 250 industries) further supports the growth potential of the stock. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. Also, over the past three years the industry to which it belongs has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment and estimates to turn stable in this name first, but once that happens, this stock could be a compelling pick.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>