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Cleveland-Cliffs Shares Tumble: Time to Reevaluate Investment Strategies?

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Written by Timothy Sykes Reviewed by Jack Kellog Fact-checked by Ellis Hobb
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Amid growing concerns over financial health and a downgrade from a leading credit agency, Cleveland-Cliffs Inc.’s stock faced significant downward pressure. On Thursday, Cleveland-Cliffs Inc.’s stocks have been trading down by -4.03 percent.

Key Developments at Cleveland-Cliffs

  • With Q3 earnings below expectations, the company’s lackluster revenue and higher-than-anticipated adjusted losses have raised concerns about its future performance.
  • A near 5% drop in the stock price during after-hours trading was observed following the disappointing financial results, emphasizing investor unease.
  • Cleveland-Cliffs’ decision to cut its capital budget for 2025 has invoked caution among investors leading to a further price decline.
  • The idling of a key blast furnace amid weaker demand and tighter margins has impacted the company’s bottom line.
  • The heavy reliance on the underperforming automotive sector significantly dented financial outcomes, raising questions about market strategy.

Candlestick Chart

Live Update at 17:03:10 EST: On Thursday, November 14, 2024 Cleveland-Cliffs Inc. stock [NYSE: CLF] is trending down by -4.03%! Discover the key drivers behind this movement as well as our expert analysis in the detailed breakdown below.

Quick Overview of Cleveland-Cliffs Inc.’s Recent Earnings Report

Reflecting on Cleveland-Cliffs’ recent earnings for Q3, one might picture a ship weathering a storm. The company, much like a boat tossed on turbulent seas, reported a loss per share of $0.33, failing to meet analyst forecasts. Revenue was reported at $4.57B, missing the consensus target and causing the stock price to falter. It’s not an entirely sunk ship though, as Cleveland-Cliffs did achieve the lowest unit cost since 2021, a silver lining in an otherwise grim report.

Examining the intricate wires of the financial system, Cleveland-Cliffs’ key ratios reveal insightful cues about its fiscal structure. Gross margins rest comfortably at 50.6%, yet profitability margins swim in negative territory. Such red numbers show the company has struggled to keep its net income in the black, possibly due to high debt, currently sporting a debt-to-equity ratio of 0.55. Reflecting their liquidity pinch, the quick ratio showcases a slim margin, leaving limited room for financial maneuverability.

More Breaking News

The partnership dance with the automotive sector, an integral component of Cliffs’ revenue, faced stumbling steps. As two of its primary clients underperformed, this ripple of inefficiency nudged the company further off course. Compounding the situation, the decision to idle their Cleveland #6 blast furnace amid dwindling demand reflects tough choices under pressurized commercial conditions.

Company Performance Insights

Zooming in on Cleveland-Cliffs’ financial physics, the revenue array paints a picture some might describe as a fluctuating economic symphony. Observing the past few days, one can notice a gradual decline in stock price. The opening price has dipped from $13.06 on Nov 1, 2024, down to $11.94 by Nov 14, 2024. This pattern underscores a continuous bearish sentiment, possibly hinting that too much emphasis on the automotive sector could be akin to putting all eggs in one proverbial basket.

In terms of assets and liabilities, Cleveland-Cliffs exhibits a balancing act. With a receivables turnover ratio at 10.8 and an asset turnover of 1.2, the company can still convert invested resources efficiently, albeit with declining returns. However, liabilities, particularly long-term debts, present a potential anchor dragging on profit margins. As recent earnings reveal, total liabilities amount to approximately $9.7B against total assets of nearly $16.8B, hinting at continued fiscal pressures.

Turning the pages further into the financial diary, the income statement reflects an ongoing saga punctuated by a 50% gross margin yet hampered by disenchanting net income. A key figure, the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), sits at a deficit, indicating the economic waters have turned choppy for Cleveland-Cliffs.

Challenges and Future Prospects

With capital expenditures on hold, Cleveland-Cliffs’ altered budget for 2025 is akin to a cautious tune played in a minor key, attempting to conserve resources amid uncertain times. While the reduced financial outlook leaves room for strategic reevaluation, questions concerning growth reign supreme. The company’s current financial strategies and market adaptability emerge as focal points moving forward.

The possibility remains that restructuring efforts could lead to more focused and streamlined operations. Yet, in the absence of responsive measures to pivotal market shifts, the stock may face continued downward currents. Observers await a clearer path or potential partnerships that might reinforce Cleveland-Cliffs’ standing in the iron ore and steel industries.

As market conditions continue to shape up, what lies ahead for Cleveland-Cliffs could hinge on effective adaptive strategies in pivoting away from underwhelming sectors. While the scenario isn’t entirely bleak, the narrative must center on innovative adjustments, resilient leadership, and a potential shift in market priorities.

In conclusion, with the share price currently showing signs of stress amidst competitive environments, evaluating the next steps requires investors and stakeholders to keep an eagle-eyed watch. Whether Cleveland-Cliffs can successfully navigate the current is yet to be seen, but for now, the storm has highlighted stark realities and the imperative for refined sails and fresh strategies.

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The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

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Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”