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Bitcoin briefly fell below $ 29,000 this week before rising above $ 34,000 at the time of writing, maintaining its position above what some see as a key threshold of $ 30,000. .
The cryptocurrency has had a wild ride, but continues to show more relevance to the future of money than other coins like the Dogecoin meme currency, which has little more than a relatively cheap price and a support base in Internet chat rooms and social media.
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Despite the explosion in their valuations, it is still difficult to recommend them as an investment. When a single Elon Musk tweet can violently rock the value of either cryptocurrency, there is too much uncertainty and risk. And in the case of Dogecoin, as my colleague Sean Williams thinks, it is little more than a pump and dump system.
Even though Bitcoin is the best bet, it is still subject to many of the same weaknesses in the crypto world. Investors may want to focus on this solid stock instead.
Arm yourself against volatility
Steelmaker Cleveland-Cliffs (NYSE: CLF) isn’t what you’d consider a stock of memes, although it recently received crowd support from r / WallStreetBets with the price up 43% in 2021 and 265% in the past year.
What drew the Reddit crowd to an otherwise heavyweight name in the old-line market like Steel was the strong short-term interest building up in its stock. While hedge funds don’t bet as much against Cleveland-Cliffs as they do against more popular names like GameStop and AMC Entertainment, about 11% of the steelmaker’s 500 million outstanding shares are sold short, a sizable amount.
Still, with days to hedge at just 2.3 (which means how long it would take short sellers to hedge their positions, with anything over seven days being considered a lot), the chance of conceiving a short squeeze on Cleveland-Cliffs seems distant.
Even so, it seems that the same stock traders could have chosen the right stocks to get on board for the wrong reason. It’s still a risky investment for them as it skews the reason they might want to exit the stock at some point in the future, but here’s why you should consider Cleveland-Cliffs for your own portfolio.
Image source: Getty Images.
A vertically integrated steel stock
Last year was a year of acquisition for the steelmaker. Its purchase of AK Steel in March followed by its takeover of ArcelorMittal in December made Cleveland-Cliffs the largest producer of flat-rolled steel in North America, giving it combined revenue of $ 5.35 billion. in 2020, more than double the $ 2 billion it produced in 2019. That puts it just ahead of No.2 Nucor (NYSE: NUE) with its $ 5.26 billion in annual revenue.
Cleveland-Cliffs, whose historic business is the production of iron ore, is also the largest US supplier of high-margin steel to the automotive industry, which accounted for 33% of first quarter sales, or $ 1.3 billion.
Automobiles are the steelmaker’s primary focus, and internal combustion and electric (EV) vehicles have incorporated steel into their development. Certainly, there is a risk as automakers continue to reduce the weight of their products, and this could become more crucial as President Joe Biden intends to step up fuel efficiency standards.
At the same time, however, as part of the president’s infrastructure proposal, more EV charging stations and potential subsidies for the EVs themselves could help boost sales, allowing Cleveland-Cliffs to offset in volume what it might otherwise lose in unit sales.
Lots of potential for expansion
Steelmakers in general have seen tremendous growth this year, with Nucor gaining 80%, Steel Dynamics up 63% and US Steel up 38%. Cleveland-Cliffs, however, has the opportunity to pursue its own growth path.
The pricing environment is favorable to the steelmaker, who has been cautious in his forecasts, and he sees it as an opportunity to repay his highly indebted balance sheet (he thinks he will be able to obtain a leverage effect of less than 1x by the end of the year. ) while generating cash flow.
At just 4 times projected earnings, Cleveland-Cliffs is a seriously undervalued stock and would be a better investment than any cryptocurrency.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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