BY MARK SEBASTIAN
September 30, 2024
Looking at CLF I have to say what is their plan to buy US Steel? The company is worth 6 billion dollars….US Steel is worth about 8 billion and even at its pre buyout valuation was worth 6 billion dollars…I am not sure how they buy X…it just doesn’t fully add up. It would have to be a merger not a take over…
To make matters worse in the take over department, the numbers don’t make a ton of sense…you have a company that pays a dividend (X) with a PE of 15 being bought buy a company that does not pay a dividend and has a PE of 164…
So what are the positives? It has good cash flow…the company is trading below book value of 15.19 (current price is 13)…the EBITDA is really good at 1.46 billion.
Rev per share is high, cash per share is high, margins for steel…not bad….
It is not a bad company.
But look at what the stock has done for most of 2024?
What caused this huge drop…
- Money left the industrials for NVDA for most of 2024
- Rates because based on what I see…there is debt
CLF has 2 billion in debt for every 3 billion in share holder equity…that is high.
The high rates were a problem.
My take…I think this one looks like it is potentially a flash 10 candidate…but it needs Option Fingerprints for that to be true…I leave Andrew to make that decision….
Cleveland Cliffs (Ticker: CLF) topped out last April at just shy of $23 and never looked back:
Following my pitchfork very well, it bottomed out at $10.21 on September 11th with a beautiful hammer.
Remember a hammer is found at the bottom of a downtrend and may signal a change in the trend, which in this case it has.
CLF has rallied from that bottom up to $12.85 or 26%.
It is currently consolidating up against some resistance here.
I would like to see it close over $13 and then go long to $14 and possibly $16.20.
If it cannot hold $13, support comes in at $12.16.
The Volatility is not falling off a CLF
I do love a pun and oh my is this a doozy. CLF is showing one of my favorite volatility runs when a stock is cheap and not doing anything but traders are piling into the options. 90 day realized volatility is relatively low at 39% but the IVs are sky high clocking in at highs of the year.
Why would options be so expensive with the stock at relative lows? Hmm…. Traders are buying options in bulk. An old adage is “don’t short a sideways market” and CLF is a good example. While a lot of talking heads keep saying recession, trailers keep buying calls.
30, 60 and 180 day IVs with 90 day realized volatility in purple
CLF would make a good put sale or a call spread buy. Most of the upside calls are relatively expensive which create cheap spreads. It is much easier for a cheap spread to make money than an expensive out-of-the-money option. By the time CLF gets to the upside strike, the near-the-money side of the call spread is nicely in the money. Cheap spreads will yield better returns and that is what we are looking for.
A fingerprint note: most institutional investors are bagholding at higher prices but some 2026 spreads look good. I will do a little historical analysis on Monday. Stay Tuned!
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