Coal has not Fallen Off the CLIFFS Yet!

Written by GSCR Staff   
Wednesday, 09 March 2016 07:57

In Monday’s Goldman Guide we went with the political theme and discussed who would be better for stocks as President, Hillary or Donald? We mentioned there could be significant differences in both energy and healthcare based on what these candidates have opined about so far. Last night there was another set of primaries and the momentum continued for what appears to be the eventual nomination for both by the Democratic and Republican parties respectively. The question for us is where do we look for possible value with a bet on the winner?

One item we alluded to in the Guide was President Obama’s absolute hammering of the coal industry with executive orders and expansion of the power of the EPA in the name of global warming. Nothing will probably change if Ms. Clinton elected, but Mr. Trump has promised to reverse these policies and bring coal back.

Several coal companies have or are pending bankruptcies as part of the carnage that also has cost several thousands of jobs. A coal rebound could have a very positive impact as well on that front. Cliffs Natural Resources, Inc. (NYSE – CLF - $2.72) has been clobbered since the start of 2011 when it was about $100 and over the past five years as the chart below demonstrates.

CLF 5-Year

(Source: www.otcmarkets.com)

MM.03.09.16.CLF-5yr

Believe it or not the short, intermediate, and long term EMA are all indicating a bullish signal for CLF. The upside for the Company is that they have survived the downturn and could be poised for a huge run if current restrictions are reversed. Enterprise Value to EBITDA is also at a low 10. Finally, Cliffs operating margin is also at 8% versus the negative 18% industry average.

Ultimately, CLF is a play on who becomes president and is more of a ‘bet’ at this point. A careful strategy may be to play it with options or wait it out until the price drops further. If the Donald, or really any other GOP candidate for that matter, is elected in November the stock could skyrocket!

Have a great day!

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