Is Cliffs Natural Resources Inc. (CLF) a Good Stock to Buy?

Alpha Natural Resources, Inc. (NYSE:ANR), CONSOL Energy Inc. (NYSE:CNX), and Peabody Energy Corporation (NYSE:BTU) are three other coal companies, though these peers provide both metallurgical and thermal coal (also known as steam coal). In terms of forward earnings estimates, Cliffs Natural Resources Inc. (NYSE:CLF) inspires the most confidence among analysts of the lot. Alpha is actually forecast to be unprofitable in 2014, as it was in 2012; that stock is another popular short target and in the fourth quarter of 2012 its revenue decline versus a year earlier was quite severe at 20%. CONSOL experienced double-digit percentage declines on both top and bottom lines- again, a weaker performance than we saw at Cliffs- and while it is expected to be profitable its forward earnings multiple of 16 represents a premium. Peabody, like Cliffs, was carried into unprofitability for 2012 by an impairment charge and it’s at least a bit closer when we look at changes in its topline. Still, it looks to us that Cliffs is more stable than these coal companies in addition to having a better outlook from the Street.

For a company more purely exposed to steel demand, it’s hard to top United States Steel Corporation (NYSE:X). A considerable percentage of shares outstanding are held short as U.S. Steel turned in its third consecutive year of unprofitability in 2012 (though some of this was due to special items, and net losses in Q4 were smaller than expected). It’s another stock where the Street is expecting rapid improvement (resulting in a forward P/E of 9). However, the continuous unprofitability leads us to be skeptical.

While Cliffs Natural Resources Inc. (NYSE:CLF) does look like it has a higher upside than many of its peers, we aren’t quite ready to recommend it as a value stock. Given the annualization of last quarter’s earnings per share we think that we would wait a quarter or two to see if the company can start actually increasing its sales and earnings and be clearly profitable for 2013.

Disclosure: I own no shares of any stocks mentioned in this article.

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