Analysts tweaked their target price lower for Cliffs Natural Resources Inc (NYSE:CLF) by 2.21% to $26.53. Cliffs bottomed at $16.74, and investors are now growing confident that the company has its $3.4 billion in debt under control. Cliffs issued mandatory convertible preferred shares and common shares to increase its cash balance and to help manage its existing debt. The company maintains that it has production costs under control. Cliffs Natural Resources Inc (NYSE:CLF) forecast sales that were based on an iron ore price of $148 per ton.
To reduce operational costs in 2013, development for Bloom Lakes was delayed, while Wabush will idle its plants next month.
Novice investors seeking value in resources need to exercise caution. The bulk of the share price movement in the companies is driven by macroeconomic factors. Macroeconomics are highly unpredictable, so investors should focus on companies that can weather the worst case scenarios. Newmont Mining Corp (NYSE:NEM) and other gold miners are not shielded well if gold prices decline, though investors interested in Newmont Mining Corp (NYSE:NEM) will be cushioned by a 4.13% dividend yield.
A decline in iron ore prices will hurt Cliffs Natural Resources, but the company is continuing to reduce its operational costs. Cliffs improved its balance sheet in February 2013 at the expense of existing shareholders. Investors buying Cliffs at current levels will own a company at a discount. Cliffs is valued at a forward P/E of 11.
In the energy sector, Valero Energy Corporation (NYSE:VLO) is even less appreciated by investors, trading at a forward P/E of 7. A slowing economy would reduce energy demand, but slowing growth is being led by China. Economic activity dipped after the sequester in the U.S., but few expect growth in this country. Valero Energy Corporation (NYSE:VLO) is up 87% in the last year, so investors should expect the decline to continue in the short-term.
The article 3 Resource Stocks With At Least 15% Upside originally appeared on Fool.com and is written by Chris Lau.
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