Cleveland-Cliffs Offers Steep Upside

Cleveland-Cliffs (CLF Quote - Cramer on CLF - Stock Picks) has become the Rodney Dangerfield of stocks: These shares get no respect whatsoever. But global expansion and an aggressive acquisition agenda -- which has led to much of the recent weakness -- could give shares solid ground from which to climb higher.

As recently as June, two separate Wall Street analysts raised their earnings predictions and adjusted price targets up to $150 a share. On the July 30, the shares traded well over $100 a share. The company announced earnings that day for the second quarter. Revenues were up 84% year over year, and earnings jumped 211% over the year-ago period. Ordinarily, this type of performance would attract momentum investors and the shares would soar. Instead, the stock has run into a stock market blizzard. Cleveland-Cliffs has gone straight down, falling into the low $40s. The shares have recovered slightly but still trade below $50, less than half of where they were just three months ago.

The slowing global economy has caused many to lower their estimates of steel usage and demand around the globe. Since Cleveland-Cliffs is the largest U.S.-based producer of iron ore pellets, a primary ingredient in steel manufacturing, this pessimistic outlook for the industry has hurt the shares. The situation is made worse by the fact that Cleveland-Cliffs sells all of its output to the domestic steel industry. The U.S. economy has been hurt the most by the current slowdown, and domestic steel demand has been sharply reduced.

The company has begun to diversify globally, adding mines in Australia and Brazil, but high shipping costs put the company at a disadvantage in the global market for iron ore. In addition, the shares were heavily owned by commodity and natural resources funds that have had to liquidate a lot of stock in recent months as energy prices fell.

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