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Cleveland Cliffs $CLF – The Infrastructure Steel Play

This post is to consider buys and options in CLF. There is VERY large near term risk and reward.

CLF is a US steel manufacturing company, one of the worlds largest, and environmentally cleanest. Says they: “Cleveland-Cliffs is the largest flat-rolled steel company and the largest iron ore pellet producer in North America. The company is vertically integrated from mining through iron making, steelmaking, rolling, finishing and downstream with hot and cold stamping of steel parts and components. ” It is not new to WSB, usually~ top 25 tickers mentioned prior 10y.

Now there is a monstrous “Infrastructure” bill being considered (bridges, roads, rail) for ~1 T USD Will it pass? We will see. That is the play here. It is a straight fundamentals/value play, with a transformative binary event coming.

TBD consider- on the plus side, all the steel needed to correct crumbling bridges, falling condo towers, the rebar for concrete, and the new Amtrak rail proposition…most all of this will come from steel made by CLF. It is a domestic pay to play contracting deal. CLF knows this. They have aquired Arcelor Mittal and AK steel to become THE player that will directly benefit from the passage of the bill. There are financial minuses. To doot:

PLUSES:

YUGE Infrastructure Contrax Potentate Transformer events imminent

110MM in cash

Profitable with 4 BB in revenue per Q (!!)

10x positive momentum, from the 2020 trough

2/3 of ownership is institutional / bullish hedges (Lazard, Wellington, Victory, Berkshire/Buffet, Viking et al)

Short float >10%

Cramer likes it

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MINUSES:

Massive Insider purchase/sell churn of 40 MM shares / 12 mos. Why?

Debt=Assets = 6BB

“Other Liabilities” = 6BB (WTF are those??)

Short float >10%

Cramer likes it

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OVERALL

The next week will determine if the Senate will pass this infrastructure thing. It is NOT CLEAR if the 1716 bipartisan earmarks funds for politicians home districts (“pork barrel profit”) will be enough to guarantee votes to pass this overstuffed pig through the Senate. This is the sub-Trillion dollar Jabba the Hutt of bills, being shoved through the door before another election, while its still possible. Negotiation is happening. A few R votes were in swing districts. However, only a few moderate/conservative seantors are needed now. It is also not clear overall if politics will interfere (despite everyone wanting to fund infrastructure), because D are demanding a concomitant social reparation and reconciliation bill, and holding this one hostage, to get equality repaired. This game of chicken will end, one way or another. Ind/Green are on board, for what minor impacts that it matters to. Usually, veterans, energy, environment, and infrastructure are political sacred cows that dont go begging, and the parties can get past theirselves to fund something. Right now the Inf bill and the D hold a 2% advantage, and that is all that’s needed. The benefit is to the home CLF steel plants in MI and MN are accompanied by powerful senators Klobuchar and Stabenow. It’s big, it’s ugly, it’s lobbied sausage. We proceed, woke to that. I assert nothing here of disparaging nature, the company is solid and, Can Do.

Obviously the CEO Goncalves has repositioned the company with aquisitions and debt leverage to take advantage of the possibility of a monster legislative win for this profitable domestic steel company. There is a gigantic balance sheet with big sleeping line items that only a professional forensic accountant could detail accurately in order to assess true risk (not myself, I just Like the Stonk). But Goncalves thinks that this Godzilla of spending will pass, and that negotiations this week will make it run. Normally mining and basic materials are boring. NOT this week.

Is it all “priced in” already ? No. Personally I think the 113 missing people from the Miamo condo, the worsening climate, buckling NW roads, and the possibilty to rebuild Amtrak, but using massive amounts of CLF steel to build new rail etc. will make this a triple bag over the next Q, even w/o Options. Revenue is up for 4 Q straight. There is overall gross political alignment and momentum. Only the trigger remains.

We are building, we are emerging from pandemic isolation to find buckled roads, falling structures, and no war to suck up commodities. This is the spend, this is the company. If you dont like it, you can go pound sand with Vulcan Materials $VMC and do a concrete play, or pump copper with the $COPX ETF. I dont own those. Disclaimer: I have 100 CLF shares, considering more if I can dump some volatile biotech.

This short analysis is my own. Do your DD, find out for yourselves, you beautiful retards, I love you. Maybe CLF will too.

Best of luck

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EDIT 1: While the numbers for CLF are all available for DD, the political needs work here; getting DMs. Did not mean to imply the vote was today. Therefore the timeline is updated to Jul 31, TBD before the August recess. I could not find a shceduled vote for a finished product. A call for a House vote was made today by a particular caucus. Tester (MT) believes there are 11-17 R that will vote for it. Legislation is being written frenetically right now. Differences of position between Biden, Pelosi, Shumer, McConnell, and Manchin are apparently nearly addressed. Apparently the goal is to craft a bill that can pass, work it out before hand, and the riders and reconciliation will get included or not depending on who they can get. Last there was a 700B water infrastructure bill not to be confused with this one, and the current infrastructure bill range reputedly is much larger, 1.2T even by some estimates. Thanks

Edit 2 : Important commentary on the market and timeline is digested here. Several have noted the presence of competitors Nucor, CMC, SDI, Gerdau in the rebar market. These makers have raised their steel prices by 40-50/st recently. Yet steel futures are astronomically high right now and are not going down. It was pointed out that 70% of the steel market is scrap. However, China is reputedly out of scrap steel now. It was further pointed out the the original Cleveland Cliffs makes iron pellet as basic fabrication stock, not completed steel product. Now the recent grab of Arcelor Mittal cold roll sheet and other products is what makes the new CLF “vertically integrated”. The post stands. If anything these comments underscore the importance of CLF balance sheet being positive and growing. The slow speed of the congressional action getting to actual CLF books is appreciated. Thanks

Edit 3: Re: Cramer. The visceral, rapid response to even mentioning the guys name has honestly taken me aback. He really evokes something primal in this community. That deserves some reflection and thought. Only one day in, I awoke this morning to another dozen messages about it. As soon as the name was mentioned in the post, a knee jerk reaction apparently went off. Many stopped reading and started writing. Several missed that he was also listed as a negative, so it has to be inferred they didnt get to the overall content summary. Admittedly that following content was a wall of text, but others appreciated it and awarded. Apologies if the attempt at humor botched. Thanks.

For this post I will neither defend nor attack the guy libelously (if thats a word). There is some useful content to his analysis; but there’s also great suspicion and even hatred in this community. It’s broader than just $CLF. So, I hear and appreciate that. However someone else will have to fully characterize and comment on it. I dont get it fully, obviously. Theres history there. Hopefully we Apes can all keep our heads on. Apologies for my stepping on an apparent landmine. Point noted.

Edit 4: TBH for an amusing and helpful counterpoint, go read [Why Biden’s Infrastructure Plan is NOT a ticket to tendie town](https://www.reddit.com/r/wallstreetbets/comments/ofcwca/why_bidens_infrastructure_plan_is_not_a_ticket_to/) by [u/Scifi_Toilet](https://www.reddit.com/user/Scifi_Toilet/)[7 hours ago](https://www.reddit.com/r/wallstreetbets/comments/ofcwca/why_bidens_infrastructure_plan_is_not_a_ticket_to/)

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46 Comments

  1. Man I didn’t sell CLF last week waiting for the 24+mark. Yesterday we hit the bottom of my crayons on the chart so I bought calls. Wish I realized the infrastructure bill was today. No way it passes the senate. Selling to close the calls first thing this morning. Keeping the shares

  2. Smart play, and honestly, the infrastructure bill is just the cherry on top. I am 100% YOLOed in on CLF.

    Here’s a DD i wrote 2 months ago. Amazing this play is still wide open. [
    Inflation, Commodities Supercycles & Broken Supply Chains: Why macroeconomic conditions have aligned to make $CLF America’s number 1 steel company](https://www.reddit.com/r/wallstreetbets/comments/n5g8ng/inflation_commodities_supercycles_broken_supply/)

    [My YOLO post.](https://www.reddit.com/r/wallstreetbets/comments/o49vmx/allamerican_steel_yolo_100_of_my_portfolio_ill/) – I’ve bought 300 more shares and dozens more calls since then. I am hoping to secure my financial future with this shit.

    TL;DR Recommend shares or close-to-money options that are at least 60 days out. Go look at a 6 month chart to see why I say that – volatility! And it’s becoming a meme stock, so…

  3. CLF is a solid turnaround play that has alot of room to run.

    I would recommend buying shares or leaps instead of short dated calls, as the timeline for a big rally is uncertain.

  4. CLF the only stock to play out of the shit list of meme alternative . I bought lif.to 6 years ago for like 8 $ post got removed because it was a penny stock but now I get like 1/2 what I paid for the stock in dividends .

  5. WSB not gonna like it cus short % only 11%.

    But things like their ROE /ROA, insane quarterly rev growth (1,000%).

    Moving above its 50 day and 200 day average.

    Lots of good things here before going into everything you said

  6. I’m in for the ride. I got in at a higher entry point though so kinda pissed about the recent dips.

    This shit literally dips at open every mf day. Hop on around 11am EST. If you wanna swing trade commons, this is it.

  7. Holding shares and bought my first options contract during yesterdays low. this morning would be a great opportunity to buy in for anyone looking to join CLF. The only downside is that it’s being looked at as a meme stock though it is a commodity so seems pretty low risk. Keeping a close eye though and if it breaks it’s uptrend I will get out.

  8. Thanks for the analysis y’all.

    Just sold the 16/15 Credit Put Spread for Aug 20th. Can’t see a way it will get that low short of some catastrophe. Seems like free money to me.

    I’ve owned CLF since $16.48 but sold calls against my shares at $20 and got them assigned. Ooops, no worries, take the profit and find another trade. This time its Credit Put Spreads

  9. Dude, you’re wrong with insiders: they’re full on buying:

    http://www.openinsider.com/screener?s=CLF&o=&pl=&ph=&ll=&lh=&fd=1461&fdr=&td=0&tdr=&fdlyl=&fdlyh=&daysago=&xp=1&xs=1&vl=&vh=&ocl=&och=&sic1=-1&sicl=100&sich=9999&grp=0&nfl=&nfh=&nil=&nih=&nol=&noh=&v2l=&v2h=&oc2l=&oc2h=&sortcol=0&cnt=100&page=1

    The CEO has like U$8mm in stocks right now and he ain’t selling because he knows the stock is going to skyrocket this year.

  10. I was in for $2000 the day the news broke that CLF was purchasing Arcelormittals American steel mill assets.

    Several of my family members worked for Arcelormittal and now CLF, they are all hopeful, no big changes have happened yet.

  11. I sold at the top last week and kicked myself for it. I was so happy this week to get another chance to buy in. Dont be like me and settle for change when this can make dollars. A solid company with a product in demand. GL to all.

  12. ” It is NOT CLEAR if the 1716 bipartisan earmarks funds for politicians home districts (“pork barrel profit”) will be enough to guarantee votes to pass this overstuffed pig through the Senate.”

    ​

    Pork o meter broke about 14 months ago.

  13. In response to your 2nd edit. This for me is the real reason to choose CLF over the others. The scrap price increase with adversely effect the margins of those who use scrap. If the thesis that China will be in a massive demand for scrap, then scrap will go to them. If scrap leaves the US and is unreasonably high then CLF’s positioning with all of its mines and other sources of iron is what makes it stand out the most.

    The spot price of steel only needs to stay above 530/Mt for clf to break even. Their ebidta was based off of 1175/Mt. We are currently in the 1800/mt range. HRC prices could drop to 1000 and CLF will still make money hand over fist. This should be seen as a steel macro play plain and simple.

    The largest bear thesis against this is China deciding it wants to continue polluting its air and its citizens which will keep. I don’t doubt China doesn’t give a fuck about it’s people other than using them as a talking point like every other government but the imagine of China being a world super power while polluting is air to the equivalent of 40 cigarettes a day does not portray a world power and that’s the real key.

    Too conclude I think this is a multi year play and the beginning of a permanent increase in the baseline for steel prices since the largest world producer has just stated it’s going to reduce production.

    Extra infrastructure is great and definitely needed for our society but not to make a company like CLF profitable. Catalysts will be paying down the debt it took to aquire aksteel and mt furnaces, divs and buy backs.

  14. I like this stock and my DD is much simpler:

    * I’m really heavy in other sectors so steel helps me diversify
    * CLF has solid fundamentals and makes a profit
    * It shows an upward trend over the last 3 years and the last 6 months
    * The IV is reasonably high but not meme-stock high
    * Building industry is getting totally fucked for cost of materials right now. contractors are starting to do cost-plus instead of just cost, so anyone producing raw materials is going to make a lot of profit. Once materials prices go down, all the people waiting to build shit are going to start building shit so even if profit is smaller per item, volume will be higher to make up for it. I think this trend will continue for at least a few years.

    Conclusion: It’s a good stock for the wheel strategy.

  15. CLF is doing great today, and hot rolled coiled steel futues are decent, though down a little.

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    I like how this thread advocates an American steel company, CLF.

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