Boosting Price Target, Buying This Steel Name After Layoff News
We're adjusting a recent Cleveland-Cliffs price target after the firm announced a rebalance.
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Earlier this week, I wrote a column suggesting the stock of Cleveland-Cliffs CLF for a trade. We went through the litany of reasons why CLF has sold off hard over the past year. That said, lower corporate taxes and reduced regulations are coming. This industry also happens to be one where increased tariffs, if sustained, could improve domestic business conditions.
We know that the fourth quarter performance was awful. This is not about that. CEO Lourenco Goncalves is optimistic for 2025. Yeah, I know. He always seems optimistic. I told you in that earlier piece that I have nothing against Goncalves, but I generally don't trust too many people in his position. I did remind readers at that time that free cash flow was positive for the fourth quarter despite the poor performance. I did tell readers at that time that I did not see CLF as an investment, but more as a trade that could work based on a pattern that has now changed. I have not yet pulled that trigger. Good thing.
The stock was trading at $0.40 when I wrote that article. Thanks to a failure at its 50-day SMA and now some less than positive news. The stock is trading at $9.24. The pattern has changed but is not necessarily negative. So, is now the time?
First, The News
The shares of Cleveland-Cliffs are off more than 3% on Friday as it announced that two of its plants in Minnesota will be temporarily idled, and 630 individuals will be, at least for now, laid off. The firm explained that the move became necessary to "rebalance working capital needs and consume excess pellet inventory produced in 2024.”
These two plants produce steel pellets that are used in auto manufacturing, a business currently slowing down partially due to the ongoing trade wars. Eventually, these steel producers could benefit from a 25% tariff on imported material. Now, let's see what changed on that chart.
Change Is Good?
This is what I showed readers earlier this week:
A still unbroken downtrend and the makings of a double-bottom pattern of reversal. The problem is that the reversal ran into its own 50-day SMA and was soundly rejected. The stock has now sold off for five straight sessions. Wait, though. Now, we have a lower potential point of entry or add level, and a new pattern has taken hold:
What we see now is a falling-wedge pattern, still a pattern of bullish reversal that has touched down twice (really almost three times) and could then make a run at that reversal after doing so. I am going to start small at this level (after publication so I don't front-run my own article) and take it from there.
Cleveland-Cliffs (CLF)
Target Price: $14 (up from $13)
Pivot: Upper trendline (currently $11.40)
Add: Down to lower trendline (currently $8.40)
Panic: Loss of lower trendline.
At the time of publication, Guifloyle had no positions in any securities mentioned.
