Cliffs Natural Resources Inc. (NYSE:CLF) insiders have a history of buying up shares in clusters, the last cluster of which we saw in late-October/early-November of last year, when five different directors of the company bought shares in the span of a week. That cluster preceded the stock nearly doubling in value over the following month, as it rose from $5.59 on November 3, when the final insider purchase was made, to $10.48 on December 5.
We haven’t seen any insider buying since then, until this past week, when another cluster of purchases grabbed our attention. Given the price action on the stock following the previous set of insider purchases, we believe investors should take note of this activity and consider buying Cliffs’ on its current bout of weakness, as insiders are.
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Let’s start by looking at the recent insider activity at Cliffs Natural Resources Inc. (NYSE:CLF). Four different directors made purchases on April 28, including Independent Director Joseph Rutkowski, who purchased 2,500 shares at an average price of $6.77. Fellow Independent Directors Gabriel Stoliar, Michael Siegal, and Robert Fisher also purchased a combined total of 16,100 shares on the same day. On May 1, Independent Director Eric Rychel joined the buying spree, purchasing 3,000 shares at $6.55 apiece.
The slew of purchases come after a devastating run for the stock, which lost 18% in April after sinking by 23% in March. A solid earnings report on April 27 didn’t do much to stem the tide of negative sentiment, despite Cliffs’ revenue coming in well ahead of estimates at $462 million, while EPS of $0.16 would have topped estimates as well were it not for a $0.27 EPS charge to pay down debt (which is a good thing). Cliffs was upgraded to ‘Outperform’ by FBR following its latest earnings report.
However, the mining company is being weighed down by crumbling iron ore prices (its primary commodity), which have fallen from above $90 per tonne to below $70 over the past two months. The big question is whether iron ore prices have hit the floor or have more room to fall. Analysts at Macquarie recently predicted that iron could fall to as low as $50 per tonne before finding support, though others suspect the floor has already been reached.
Given their recent buying activity, we suspect the aforementioned Independent Directors fall into the latter category, or believe Cliffs Natural Resources Inc. (NYSE:CLF)’s stock is now undervalued even should iron ore fall further, and are willing to wait out the storm. Given their success at predicting the stock’s previous bull run (three of the five were among the group that bought shares during the previous cluster of buying), we like investors’ chances of finding some near-term gains with this stock.