Cautionary Note
I normally have no reservations once I have completed my valuation of a company, but this one was different. I valued the company year-over-year starting with FYE 2007. As always, the financial data that I use is take directly from a company’s 10-K filing as obtained from the SEC website. The reason I say use caution with this stock, is because during my valuation process, the financial data kept changing.
For example, FYE 2017 10-K total sales were listed as $2330.4 million. But on the FYE 2018 10-K prior year total sales were listed as $1866.0 million. While there was a FYE 2017 10-K/A filing, the amendment had to do with the company’s request for Confidential Treatment of specific Exhibits it did not include with its 10-K, not changes to its financial statements.
The other thing to be aware of, is that for FYE 2014 through FYE 2018 much of the company’s income, in some cases all of the company’s income, was the result of income tax benefits, not from its business operations. So please take your time. Be relentless in you research should you decide this company may benefit your portfolio. Valuations are one thing, your hard earned dollars are another.
My Disclaimer
I could waste a lot of your time with graphs, charts, and other assorted worthless information all intended to show you that I know something about something when it comes to this company. But the truth is, I don’t know squat about this company. What I can tell you about this company is that I am a shareholder.
My intent with this post is to provide you with a brief overview of my various valuations for the company, all based on their latest 10-K filing, so you can determine if you have any investment interest.
Past and future gains contained in this post are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Investors should always be aware that any investment has the potential for loss, and past performance is no guarantee of future results.
What They Do
Cleveland-Cliffs is an independent iron ore mining company, supplying iron ore pellets to the North American steel industry from mines and pellet plants located in Michigan and Minnesota. Industry peers include BHP Group Ltd., ArcelorMittal, and Rio Tinto Ltd.
Short-Term Target
My current short-term target for the stock is $10.79, with an initial trailing stop set at $9.81. With a recent price of $9.96, upward price movement will find resistance at $10.24, and again at $10.78, with final resistance coming at $11.20. Downward price movement will find support at $9.31, and again at $9.02, leaving support at $8.67.
Momentum Target
My momentum target for the stock is $70. Momentum targets are determined by overlaying a company’s most recent annual EPS, its year-over-year earnings growth, and the current yield of a 10-year treasury. Momentum investing often requires investors to trade in stocks that have already enjoyed significant gains while making no allowances for overall market corrections or the sustainability of a company’s earnings.
Growth Target
My growth target for the stock is $182. Growth targets are determined using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.
Fair Value Investing
Fair value investing, more commonly known as value investing, requires investors to consider a company’s overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. For many fair value investors, the minimum required hold is five (5) years. My fair value estimate for the stock is $55.
Prior Average Valuations
My average valuation for the prior five year period of FY 2013 through FY 2017 was $10. Earnings during that time period averaged $(8.91) per share and the average PE Ratio was (1).
Five Year Growth of $10K
If you had invested $10K in the stock five years ago (12/13), you would have received 381.53 shares of stock with a cost basis of $26.61. per share. Had you held the stock for five years and then closed your position (12/18), you would have closed at $7.27 per share. During that holding period you would have collected $45.78 in dividends, and your initial $10K investment would have returned to you $2,820 or (14)% per year.
Clevaland-Cliffs, Inc. (NYSE: CLF) – FYE 12/2018 – UNDER VALUED The stock is currently trading at levels below my $33 initiate target. Please See Linked PDF Worksheet
There you are, as promised, short and to the point.
Wax
Posted on 03/19/19