"As steel prices continue to climb, one company that is set to profit handsomely is Cleveland-Cliffs (NYSE: CLF)," says trading and investing expert Bill Martin.
Adding to the stock's speculative appeal, the editor of BullMarket.com explains, "Event-driven hedge fund Harbinger Capital has been an aggressive buyer of the stock." Here's his review of the situation.
"The Cleveland, Ohio-based company is the largest producer of iron ore pellets in North America and a major supplier of metallurgical coal to the global steel-making industry.
"It benchmarks iron ore prices to the price of steel, so when steel prices rise, so do iron ore prices. The company said all of its North American iron ore mines are producing at or near capacity.
"The shares have been on fire, up over 150% year over year and they have more than doubled year to date.
"Cleveland-Cliffs ended the first quarter of 2008 with $186.5 million of cash and cash equivalents and $600 million in borrowings outstanding under an $800 million credit facility. The firm expects to generate approximately $700 million in cash from operations in FY08 as it sells through its inventory.
"Event-driven hedge fund Harbinger Capital was an aggressive buyer of the stock in May, paying between $76.96 to $104.75 a share to add to its position in the name. For the month, the firm spent approximately $338.5 million to acquire nearly 3.7 million shares.
"The firm owns 15.6 million shares total. The firm first acquired a stake in Cleveland-Cliffs during 4Q07, when it purchased 8.2 million shares.
"A subsidiary of Alabama-based Harbert Management, Harbinger is best known as a distressed and event-driven investor. The firm manages more than $20 billion in assets, and in 2007, its two special situation funds racked up respective returns of 118% and 170%.
"Cleveland-Cliffs is another commodity-driven company that is working in this market. As long as emerging countries like China, India, and Brazil keep building and steel prices remain elevated, stocks like Cleveland-Cliffs are just going to keep moving higher.
"With an enterprise value under $10 billion, the company may also be an attractive takeover target for a large steelmaker or miner. We don't know if that could be behind Harbinger's interest, but it certainly could be, and it has a large enough stake to exercise its muscle if an attractive deal is presented."
