Cleveland-Cliffs experienced a 15% decline over one month following its earnings announcement on February 24. The company reported a larger-than-expected loss of $0.68 per share and fell short of revenue expectations, which led to a significant drop in investor confidence. The global steel market is contending with weak demand and oversupply, putting downward pressure on steel prices. As a company heavily dependent on raw materials, Cleveland-Cliffs is particularly impacted by these conditions. However, tariffs on imported steel might benefit domestic producers like Cleveland-Cliffs – see Buy Cleveland-Cliffs Now for a more complete perspective. Even so, investors might benefit from a refresher on past performance.
In downturns, Cleveland-Cliffs can suffer significantly – there is evidence as recent as 2022 that the stock lost up to 60% of its value in just a few quarters. Naturally, individual stocks are more volatile than diversified portfolios – and in this environment, if you are looking for upside with less volatility than that of a single stock, consider the High-Quality portfolio, which has outperformed the S&P 500 and delivered returns greater than 91% since its inception.
Why is that relevant now?
Once again, although Cleveland-Cliffs is touting its $1.5 billion stock buyback program, potential improvements in steel demand, and the benefit of tariffs on imported steel for domestic producers, there is also a considerable risk to the U.S. economy that must be considered at this time.
What is that? While inflation fears have lessened, they have not disappeared. In fact, Trump’s assertive actions on tariffs and immigration have raised concerns that inflation could return. This scenario suggests that the U.S. economy might face serious challenges, or even a recession – as discussed in our analysis on the macro picture. When you also factor in the increased geopolitical uncertainty from bold policies by the new Trump administration, these risks become even more critical. With the Ukraine-Russia conflict still in progress, unpredictable trade conditions, and long-term allies such as Canada, Mexico, and Europe being called to the negotiating table, the stakes are high.
Here’s the specific Cleveland-Cliffs stock data that concerns us
CLF stock has fared much worse than the benchmark S&P 500 index during several recent downturns. Although investors are hoping for a soft landing for the U.S. economy, how severe could another recession be? Our dashboard, How Low Can Stocks Go During A Market Crash, illustrates how key stocks performed during and after the last six market crashes.
Inflation Shock (2022)
• CLF stock fell 64.1% from a high of $33.07 on 28 March 2022 to $11.87 on 3 November 2022, compared to a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest level reached since then was $22.83 on 3 April 2024, and it is currently trading at around $10 per share
Covid Pandemic (2020)
• CLF stock fell 59.6% from a high of $7.60 on 19 February 2020 to $3.07 on 23 March 2020, compared to a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 7 October 2020
Global Financial Crisis (2008)
• CLF stock fell 89.9% from a high of $119.19 on 30 June 2008 to $12.01 on 2 March 2009, compared to a peak-to-trough decline of 56.8% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
Protecting Wealth
In summary, although Cleveland-Cliffs stock is currently relatively inexpensive – trading at only about 0.26x last year’s sales – its revenues declined last year, and consensus estimates suggest growth of only about 7% this year. Therefore, while the recently imposed tariffs should benefit Cleveland-Cliffs, ask yourself: if you plan to hold onto your Cleveland-Cliffs stock, would you panic and sell if it begins to drop to $8, $5, or even lower levels?
Holding on to a falling stock is not always easy. Trefis partners with Empirical Asset Management – a Boston-area wealth manager whose asset allocation strategies yielded positive returns during the 2008/2009 period, when the S&P lost more than 40%.Empirical has integrated the Cleveland-Cliffs revenues into its asset allocation framework to provide clients with improved returns and reduced risk compared to the benchmark index; a less volatile ride, as shown by the HQ Portfolio performance metrics.
While investors are hopeful for a soft landing for the U.S. economy, how severe could another recession be? Check out the comparison of the last six market crashes compared.
Invest with Trefis
Market Beating Portfolios | Rules-Based Wealth