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Is Cliffs Natural (CLF) a Great Stock for Value Investors?
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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 Cliffs Natural Resources, 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, Cliffs Natural has a trailing twelve months PE ratio of 21.34. This level compares slightly unfavorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.28.
If we focus on the long-term trend of the stock the current level puts Cliffs Natural’s current PE among its highs over the observed period. Nevertheless, 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 similarly with Zacks classified Basic Materials sector’s trailing twelve months PE ratio, which stands at 21.38. At the very least, this indicates that the stock is similarly valued right now, compared to its peers.
We should also point out that Cliffs Natural has a forward PE ratio (price relative to this year’s earnings) of just 5.46 – considerably lower than the current level. So it is fair to say that a significantly more value-oriented path may be ahead for Cliffs Natural stock in the near term. The drastic difference between the trailing twelve months PE ration and forward PE ratio is the result of Cliffs Natural’s seemingly volatile earnings trajectory.
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, Cliffs Natural has a P/S ratio of about 0.90. This is considerably lower than the Zacks categorized Basic Materials sector average, which comes in at 2.50 right now. Notably, Cliffs Natural has always traded cheaper in comparison to its peers, from a P/S ratio perspective.
However, CLF is actually towards the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Cliffs Natural 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 Cliffs Natural 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 4.56, which is better than the industry average of 5.07. Clearly, CLF is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cliffs Natural 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 ‘A’. This gives CLF a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Cliffs Natural seems to have pretty striking prospects.
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 five upward revisions and no 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 28.6% in the past two months, while the current year estimate has moved higher by 65.6%. 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
Cliffs Natural is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.
The company forms a part of the Zacks classified Mining – Iron industry which has a sluggish industry rank (among the Bottom 21% out of more than 250 industries). Cliffs Natural is thus faced with a challenging operating environment. The current uncertain macroeconomic environment, including slowdown in Europe, is impacting the company’s operations. Moreover, demand for raw materials used in steel production is mostly driven by rapid industrial growth in China. Demand for iron ore is somewhat soft in China given the sluggishness in the country’s economy.
Notably, over the past three years the Zacks categorized Mining – Iron industry has clearly underperformed the broader market, as you can see below:
Nevertheless, Cliffs Natural remains focused on de-leveraging its balance sheet and improving its cost structure. The company is also focused on cash management, including optimum utilization of cash in capital allocation plans. Commitment to increasing shareholder returns through dividends and share buybacks also bode well for investors.
So, value investors might want to wait for analyst sentiment to turn stable in this name first, but once that happens, this stock could be a compelling pick.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
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Is Cliffs Natural (CLF) a Great Stock for Value Investors?
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 Cliffs Natural Resources, 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, Cliffs Natural has a trailing twelve months PE ratio of 21.34. This level compares slightly unfavorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.28.
If we focus on the long-term trend of the stock the current level puts Cliffs Natural’s current PE among its highs over the observed period. Nevertheless, 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 similarly with Zacks classified Basic Materials sector’s trailing twelve months PE ratio, which stands at 21.38. At the very least, this indicates that the stock is similarly valued right now, compared to its peers.
We should also point out that Cliffs Natural has a forward PE ratio (price relative to this year’s earnings) of just 5.46 – considerably lower than the current level. So it is fair to say that a significantly more value-oriented path may be ahead for Cliffs Natural stock in the near term. The drastic difference between the trailing twelve months PE ration and forward PE ratio is the result of Cliffs Natural’s seemingly volatile earnings trajectory.
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, Cliffs Natural has a P/S ratio of about 0.90. This is considerably lower than the Zacks categorized Basic Materials sector average, which comes in at 2.50 right now. Notably, Cliffs Natural has always traded cheaper in comparison to its peers, from a P/S ratio perspective.
However, CLF is actually towards the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Cliffs Natural 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 Cliffs Natural 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 4.56, which is better than the industry average of 5.07. Clearly, CLF is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cliffs Natural 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 ‘A’. This gives CLF a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Cliffs Natural seems to have pretty striking prospects.
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 five upward revisions and no 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 28.6% in the past two months, while the current year estimate has moved higher by 65.6%. 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
Cliffs Natural is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.
The company forms a part of the Zacks classified Mining – Iron industry which has a sluggish industry rank (among the Bottom 21% out of more than 250 industries). Cliffs Natural is thus faced with a challenging operating environment. The current uncertain macroeconomic environment, including slowdown in Europe, is impacting the company’s operations. Moreover, demand for raw materials used in steel production is mostly driven by rapid industrial growth in China. Demand for iron ore is somewhat soft in China given the sluggishness in the country’s economy.
Notably, over the past three years the Zacks categorized Mining – Iron industry has clearly underperformed the broader market, as you can see below:
Nevertheless, Cliffs Natural remains focused on de-leveraging its balance sheet and improving its cost structure. The company is also focused on cash management, including optimum utilization of cash in capital allocation plans. Commitment to increasing shareholder returns through dividends and share buybacks also bode well for investors.
So, value investors might want to wait for analyst sentiment to turn stable in this name first, but once that happens, this stock could be a compelling pick.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>