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CLF Stock Falls, Should You Bottom Fish?

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  • Cleveland-Cliffs (NYSE:CLF) stock fell more than 24% on March 18. The stock was trading down in early trade today as well. In contrast, other steel stocks like Nucor (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD) are in the green. However, the stock recouped its losses and turned green, which could be a signal of some value buying.
  • CLF completed the acquisition of AK Steel. The fall in Cleveland-Cliffs stock price might be due to production shutdowns in the US automotive industry.

CLF stock falls

CLF stock has been in a free fall this month and has lost almost 50%. Last week, the company completed the acquisition of AK Steel. The acquisition was announced in December. When the acquisition was announced, CLF stock fell and AK Steel stock rose. Cleveland-Cliffs paid a premium over AK Steel’s prevailing stock price. After acquiring AK Steel, Cleveland-Cliffs is now an integrated steel producer. The company has iron ore mining and steel production operations.

Turbulence in the automotive industry

AK Steel mainly supplies steel to automotive companies. The automotive industry is a lucrative market for steel companies. However, US automotive giants like Ford (NYSE:F) and General Motors (NYSE:GM) announced production shutdowns. The shutdowns will likely have a negative impact on their steel demand. Given AK Steel’s high exposure to the automotive industry, its businesses will be impacted more compared to other US steel companies. While the broader market sell-off is also contributing to the sell-off in CLF stock, automotive shutdowns are compounding the problem.

Should you bottom fish CLF stock?

Cleveland-Cliffs is trading at multiyear lows, which isn’t surprising. Metals and mining stocks have fallen amid the stock market crash. Should you bottom fish in CLF stock now? In my view, the risk-reward ratio looks favorable for the company. Cleveland-Cliffs has an enviable position in the US iron ore market. Iron ore prices have been stable. Steel prices have mainly been stable in the US and China. Cleveland-Cliffs’ HBI plant will also be a key earnings driver starting this year.

While the coronavirus-led slowdown will impact stock market sentiments, CLF stock looks attractive from a long-term perspective. I think that right now is a good time to do some bottom fishing in Cleveland-Cliffs. Wall Street is also positive about the company. Analysts’ mean consensus target price suggests almost a 146% upside over the next 12 months.

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