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Does Sinking Cliffs Natural Resources Inc (CLF) Amid Iron Ore Glut Provide An Entry Point?

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Shares of the mining and natural resources company, Cliffs Natural Resources Inc (NYSE:CLF) have fallen more than 10% in the last two trading days owing to glum forecasts for the price of iron ore. Wolfe Research’s Gordon Johnson argues that the spot iron ore prices are hovering around right now of $60/mt, will soon head for a downturn, crossing its multi-year low of $47/mt in the near future. The reason for the gloomy forecast is that when commodity prices fell to less than $47/mt this year, none of the producers limited their capacity, which has lead to a continued supply gut in the market. Johnson expects that the 52Mmt oversupply in 2014 will swell to about 183Mmt in 2015 given the dip in crude steel production in China this year, which will be a first since the 1980’s. The short interest in Cliffs Natural Resources Inc (NYSE:CLF) stood at 42.20% of the float as of mid-June. Moreover, the company’s gross margin of 7.68 is also much lower than the industry’s average of 23.22.


Smart money has already been closing their holdings in Cliffs Natural Resources Inc (NYSE:CLF) during the first three months. Among the hedge funds that we track, a total of 17 firms had invested a total of $110.19 million in the company at the end of March, compared with 26 funds with $166.45 million at the end of the previous quarter.

Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 80 percentage points, returning over 135% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.

Insider trading provides valuable insights into how the company’s mangement expects the business to perform in the future, and we keep a close eye on these trades as well. Lourenco Gonclaves, President & CEO of Cliffs Natural Resources Inc (NYSE:CLF) has purchased more than 300,000 shares of the company so far this year, while no insider sales have been detected thus year.

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