Cliffs Natural Resources (CLF) is mainly exposed to the US domestic steel market. It has long-term contracts with US steelmakers and is affected much more by what’s happening in the US steel sector than in the seaborne iron ore market.
Since Donald Trump’s election win in November 2016, most analysts have turned optimistic toward the US steel sector, given Trump’s stance on protectionism and his focus on infrastructure.
On November 9, 2016, 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) also turned bullish on US steel (SLX) stocks after the 2016 election. Better fortunes for the US steel sector bode well for Cliffs Natural Resources, the only North American pure-play iron ore pellet supplier. Its analyst, Kurtz, upgraded Cliffs from “underweight” to “equal weight” and increased its target price from $3 to $9.
JPMorgan Chase (JPM) increased its target prices for steel stocks and Cliffs Natural Resources on November 29, 2016. JPM has an “overweight” rating on CLF and has raised its target price from $7 to $10.
A different take
Argus downgraded U.S. Steel from a “buy” to a “hold” on November 29. The company sees the stock as overbought following its surge after Trump’s win.
Axiom analyst Gordon Johnson believes that excess supply poses a risk for iron ore prices. For this reason, he recommends a short position on Cliffs, U.S. Steel, and Rio Tinto (RIO).
While analysts’ reactions have been mixed regarding the recent run-up in stocks, most agree that better times appear to be ahead for the US steel sector due to rising infrastructure demand and Trump’s protectionist measures.