Cleveland-Cliffs is today's pick for IBD 50 Growth Stocks To Watch as the steel stock approaches the buy point of a new base.
The Cleveland-based company produces flat-rolled steel and supplies iron ore pellets in North America. Following acquisitions and the completion of its Toledo Reduction Plant in 2020, Cleveland-Cliffs transformed into a vertically integrated steel company. The steelmaker's operations range from extracting raw materials to making steel products, tubular parts and stamping and tooling.
Earnings per share for the steelmaker have been on an uptrend the past five years, coming in at 71 cents in 2017 and zigzagging upward with $3.63, $1.12, 6 cents and $5.98 through 2021, according to MarketSmith.
What's more, annual revenue growth jumped from $2 billion in 2019 to $5 billion in 2020 and $20 billion in 2021. Finished steel shipments ramped up from nothing in 2019 to 3.8 million tons in 2020 and 15.9 million tons last year.
Steelmakers aren't your typical growth stock, most having a strong cyclical nature that ebbs and flows with economic tides. But any company can enter a growth phase for an extended period. Cleveland-Cliffs' fundamentals suggest it has a ways to go to become a full member of the growth club.
It has an Earnings Per Share Rating of 78. And while recent earnings growth has been strong, it has been somewhat erratic — not the persistent upward line that many growth stocks take.
That doesn't mean the steel stock can't forge big returns as it has done in the past. It ran up 32% after breaking out of a consolidation in April last year.
The steelmaker expects prices for hot rolled coiled steel to remain above average for the next two years, bolstered by continued short supply of prime scrap, infrastructure investment and increasing automotive builds.
Steel Stocks: Group Is On The Rise
Cleveland-Cliffs ranks No. 6 in IBD's steel producers group, which itself ranks No. 20 out of the 197 industry groups that IBD tracks, according to Stock Checkup. That's a big jump from No. 139 three weeks ago and 134 six weeks ago, indicating that institutional investors are moving money into steel stocks.
CLF stock also has a perfect 99 Composite Rating, which combines fundamental and technical ratings into one convenient rating. Another sign of strength: The steel stock's relative strength line has been trending higher since shares bottomed in late January. Watch to see if it can hit a new high as the stock hits its buy point or even before, which would be another bullish signal.
Shares have formed a double-bottom base with a buy point of 24.77. The base started Oct. 26, when the stock peaked at 26.51. The middle point of the W shape in the pattern was reached on Jan. 5.
Early on Thursday, CLF stock jumped 2% to 24.06, its sixth straight session of advances and just 71 cents below the buy point. The RS line continued toward new high ground.
