Welcome to the first full week of trading for 2025, or at least it would have been a full week if not for the Thursday holiday to celebrate Jimmy Carter.
Your write-up makes a compelling case for Cleveland Cliffs, but here’s something to consider: if much of CLF’s potential hinges on cyclical recovery and management’s knack for under-promising and over-delivering, how do you think the market is mispricing the company now? Is it the lagging recognition of vertical integration’s cost advantages, skepticism about steel prices, or a broader aversion to the sector’s cyclicality?
But let’s add a twist—what if inflation re-accelerates, and Powell does his best hawk impression? In a scenario where rate cuts are off the table and tighter monetary policy reignites fears of economic stagnation, does CLF’s operational efficiency and strategic positioning remain enough to keep the investment thesis intact? Curious how much of the four-bagger potential you’d attribute to Cliffs’ internal strengths versus the broader macro hand it’s dealt.
Obviously the four bagger exit would require a cyclical peak, whether in two years or in seven, who knows. Inflation would destroy the real value of the debt, so not a terrible path. Cost cutting measures and performance in the down cycle have been impressive. It's true that if we enter a recession now, cyclical stocks would probably go lower. As for the price today, it looks more like mispricing to me, as opposed to pricing in probabilistic bankruptcy.
I agree that the current valuation seems more like a case of market mispricing than a serious reflection of bankruptcy risk, but it does raise some questions. While CLF’s vertical integration and cost efficiencies position it well for the downcycle, is the market’s skepticism tied more to broader concerns about steel prices and cyclical recovery? Or could it be discounting the durability of these operational improvements if we see prolonged economic stagnation or further monetary tightening? It feels like there’s an underappreciation of CLF’s strategic positioning, but also a lingering uncertainty about how much the macro environment could weigh on its re-rating potential. I do still like the company after all that is said
New subscriber and longtime holder of BTU from $2 and that is how I found this group. Really enjoyed the Peabody writeup. I have been buying CLF for a while now so I have a full position in around $10. Based on this article, I deployed the following trade. Not sure if we share these ideas, but I figured it can't hurt. Sell Jan '26 $8 puts for ~$1.20. Buy Jan '26 $15 calls for ~$1.08 and sell ~Jan '26 $20 calls for .50. If CLF gets above $13.80 the upper range is $20. Should be a profitable trade overall and I might actually just let some shares get called away at $20 for 2X. Worse case scenario you get CLF for sub $7, which allows you to get a 5.5X bagger based on this article.
Yeah, I saw that. I'm not a legal expert, but I suspect that lawsuit would get dismissed for Freedom of Speech reasons. I don't have a strong opinion on the US Steel assets or competitiveness, except for what I've heard here and there. They make different types of steel for different end markets. Allegedly CLF has more fixed contracts, and less spot market exposure.
Thank you for introducing me to CLF. Low cost vertically integrated cyclicals can be good value sometimes. The stock price chart seems to support your observation that the company is tied to interest rates - autos - construction. I can infer why the stock peaked prior to the GFC and spiked again during the pandemic stimulus boom, but why the big runup in 2011? Thanks in advance for any clarity you can provide.
Any thoughts about Ternium (TX)? Another steel maker with some vertical integration except primarily exposed to Mexico and Brazil, and is thus trading even cheaper.
Your write-up makes a compelling case for Cleveland Cliffs, but here’s something to consider: if much of CLF’s potential hinges on cyclical recovery and management’s knack for under-promising and over-delivering, how do you think the market is mispricing the company now? Is it the lagging recognition of vertical integration’s cost advantages, skepticism about steel prices, or a broader aversion to the sector’s cyclicality?
But let’s add a twist—what if inflation re-accelerates, and Powell does his best hawk impression? In a scenario where rate cuts are off the table and tighter monetary policy reignites fears of economic stagnation, does CLF’s operational efficiency and strategic positioning remain enough to keep the investment thesis intact? Curious how much of the four-bagger potential you’d attribute to Cliffs’ internal strengths versus the broader macro hand it’s dealt.
Obviously the four bagger exit would require a cyclical peak, whether in two years or in seven, who knows. Inflation would destroy the real value of the debt, so not a terrible path. Cost cutting measures and performance in the down cycle have been impressive. It's true that if we enter a recession now, cyclical stocks would probably go lower. As for the price today, it looks more like mispricing to me, as opposed to pricing in probabilistic bankruptcy.
I agree that the current valuation seems more like a case of market mispricing than a serious reflection of bankruptcy risk, but it does raise some questions. While CLF’s vertical integration and cost efficiencies position it well for the downcycle, is the market’s skepticism tied more to broader concerns about steel prices and cyclical recovery? Or could it be discounting the durability of these operational improvements if we see prolonged economic stagnation or further monetary tightening? It feels like there’s an underappreciation of CLF’s strategic positioning, but also a lingering uncertainty about how much the macro environment could weigh on its re-rating potential. I do still like the company after all that is said
I think the market might be weighing the potential of some sort of a global slowdown.
New subscriber and longtime holder of BTU from $2 and that is how I found this group. Really enjoyed the Peabody writeup. I have been buying CLF for a while now so I have a full position in around $10. Based on this article, I deployed the following trade. Not sure if we share these ideas, but I figured it can't hurt. Sell Jan '26 $8 puts for ~$1.20. Buy Jan '26 $15 calls for ~$1.08 and sell ~Jan '26 $20 calls for .50. If CLF gets above $13.80 the upper range is $20. Should be a profitable trade overall and I might actually just let some shares get called away at $20 for 2X. Worse case scenario you get CLF for sub $7, which allows you to get a 5.5X bagger based on this article.
Thank you for sharing that trade idea. And welcome to my substack!
Any thoughts on how this compares for value to US Steel? Also have you seen the lawsuit filed today by US Steel, against Cliffs and their CEO?
Yeah, I saw that. I'm not a legal expert, but I suspect that lawsuit would get dismissed for Freedom of Speech reasons. I don't have a strong opinion on the US Steel assets or competitiveness, except for what I've heard here and there. They make different types of steel for different end markets. Allegedly CLF has more fixed contracts, and less spot market exposure.
Any thoughts on $GGB? Political or tariff risk more of an issue?
I haven't looked into $GGB yet. I think I like Brazil better for fintech for now. I don't want to go all in on international.
Thank you for introducing me to CLF. Low cost vertically integrated cyclicals can be good value sometimes. The stock price chart seems to support your observation that the company is tied to interest rates - autos - construction. I can infer why the stock peaked prior to the GFC and spiked again during the pandemic stimulus boom, but why the big runup in 2011? Thanks in advance for any clarity you can provide.
At that time they were a mining company, heavily focused on iron. Probably a commodity price fluctuation.
p/e of 1!
(maybe possibly sometime in the future)
Peak of the next cycle.
I don’t like their interference/collusion in the Nippon-US Steel merger. Goncalves is a racketeer.
Unions are a messy business. I would prefer to always avoid them.
Any thoughts about Ternium (TX)? Another steel maker with some vertical integration except primarily exposed to Mexico and Brazil, and is thus trading even cheaper.
Thanks Steve. Added to watchlist. Great idea adding target price and timeframe. Cheers. 👍🏼