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Are Analysts Becoming Wary of the Run-Up in CLF after Trump’s Win?

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Analyst sentiment for Cliffs

Analysts that cover Cliffs Natural Resources (CLF) gave it 22% “buy” recommendations, 22% “sell” recommendations, and 56% “hold” recommendations. It has a consensus target price of $6.40, which implies a potential downside of 28%.

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Steel upgrades

After Donald Trump’s US presidential win in November 2016, most analysts have turned optimistic on the US steel sector, given his stance on protectionism and infrastructure focus. Jefferies upgraded U.S. Steel (X) from “hold” to “buy” with a target price of $26. 

On November 9, Jeffries analyst Seth Rosenfeld stated, “The US steel industry should stand out as a unique beneficiary of a Trump presidency. Protectionism will significantly rise; the US is already short steel, and falling imports will improve domestic pricing power.”

Morgan Stanley (MS) has also turned bullish on US steel (SLX) stocks after the election. Morgan Stanley analyst Evan Kurtz wrote in a November note to clients, “We believe Trump’s plans for infrastructure spending and trade protection, as two of the most digestible of his proposals, could be early in the queue.” Kurtz upgraded U.S. Steel (X) and AK Steel (AKS) from “equal weight” to “overweight.”

Better fortunes for the US steel sector also bode well for Cliffs Natural Resources (CLF), the only North American pure-play iron ore pellet supplier. Kurtz upgraded Cliffs from “underweight” to “equal weight” and increased its target price from $3 to $9.

J.P. Morgan (JPM) also increased the target prices for steel stocks as well as for Cliffs Natural Resources on November 29. JPM has an “overweight” rating on CLF and raised the target price from $7 to $10.

Are CLF’s peers overbought?

Macquarie, on the other hand, downgraded six steel stocks on November 29. AKS, Nucor (NUE), and Steel Dynamics (STLD) were three of those names. This follows a steep rally following Trump’s win.

Argus also downgraded U.S. Steel from “buy” to “hold” on November 29. The firm thinks that the stock is overbought following a surge after Trump’s win. It added, “We believe that U.S. Steel and its peers still face significant uncertainty in the near term, and do not expect increased infrastructure spending to boost earnings until at least mid-2017.”

While analysts’ reactions are mixed regarding the recent run-up in stocks, most of them agree that better times appear to be ahead for the US steel sector due to rising infrastructure demand and protectionist measures.

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