$CLF is the least risky “meme” stock this sub has seen since GameStore. via /r/wallstreetbets


$CLF is the least risky “meme” stock this sub has seen since GameStore.

Want to know why you’re nervous, anxious, and emotionally turbulent when you make that Meme stock YOLO?

Because you have no fucking clue why you’re investing in it outside of group-think.

Spoiler alert: virtually none of the companies being spammed on this sub over the last week make any fucking money. Go for it, look up their last earnings report and look at how much money they shat down the drain.

That’s why they have short interest in excess of 20% – they’re SHIT COMPANIES.

Trading them is a fucking shot in the dark – sure, it might go up based off retail buy pressure, gamma ramp, or a short getting margin called elsewhere in their account – but if it does YOU GOT LUCKY.

These are shit companies, and guess what happens if you don’t get the market mechanics you’re looking for?

You’re bag holding a shit company.

There are literally two companies with traction on this sub that turn a profit, $UWMC and $CLF.

UWMC looked good months ago, same time RKT did – only since then housing starts have dropped three months in a row, and the imminent collapse of homebuyer sentiment is dinner-table conversation in every suburb your mom has a boyfriend. Share price valuations are forward-looking, and the outlook for UWMC is not overly positive, no matter what the half-assed DD you read here said.

CLF has the exact opposite macro-outlook. Steel prices have tripled in the past year, with industry overheads remaining largely stable save for the price of Iron Ore, which has also ran up significantly. Fortunately, CLF produces their own Iron Ore, so they are literally shitting out money as they reap the benefits of vertical integration.

Steel prices are the highest they’ve ever been – nearly every single steel company is going to report their greatest quarter in history this summer. But most importantly:

STEEL PRICES ARE GOING TO STAY HIGH. Why?

  • Chinese steel accounts for 15-20% of the global export market, and they’ve all but stopped exporting – they eliminated Tax rebate incentives for steel producers last month in a bid to keep supply grounded domestically for their own affordable infrastructure stimulus and carbon emissions goals, and have been floating rumors of an export tax the past two weeks. 15% of the worlds export tonnage drying up is HUGE – the leftover demand will NEED to come from somewhere.

Additionally, the 2022 Beijing olympics are around the corner, and who remembers what china did in an effort to combat smog prior to the 2008 games? They shuttered steel production in Beijing/Hebei, one of the largest steel producing provinces. Less Chinese steel = higher ex-China prices.

  • Nations using infrastructure-as-stimulus post-covid. Bidens infrastructure bill is coming down the pipe. China issued a $500 Billion package as well, and they’re being floated in parliaments across South America, Asia, and Europe as we speak.

  • Industry consolidation. Competition and supply gluts are what eventually kill commodity runs – but the US and European steel industries have consolidated into significantly fewer hands since the last steel bull run. The current CLF is the product of the 2020 acquisitions of AK Steel and ArcelorMittal USA, taking two independent drivers off the table.

In addition to the boatload of macroeconomic tailwinds the steel industry writ-large is experiencing, there are also CLF specific advantages.

  • GOES. CLF is the sole American producer of Grain-Oriented Electric Steel (GOES), which is necessary for transformers, generators, and other grid elements necessary for the transition to renewables.

  • Vertically Integrated. Discussed earlier, CLF is equal parts Iron Ore Miner and Steel producer.

  • High short interest. on the order of 20%. I truly do not understand the shorts thesis AT ALL. Yes CLF is leveraged due to recent acquisitions, but they are printing money. Literally printing it.

For perspective: CLF is an $11 Billion company that is projected to do $4 Billion+ in EBITDA this year. AMC is a $25 Billion company that did $0.77 Billion EBITDA in 2019, PRE-Pandemic.

I trimmed my CLF for other steel companies over the last couple weeks and am regretting it now that WSB is finally aware of the shares on loan %.

CLF’s fair valuation relative to CURRENT industry peers based on forward EBITDA, book value, and managements forecasts on debt pay down would put CLF squarely in $30-40 / share range. That’s not even counting continued sector growth over the coming year, that’s just fair value right now.

Fair value returns at 50%-100% even BEFORE meme/squeeze returns is a hell of a lot safer of a bet than UWMC, BB, AMC, GME, CLNE, CLOV, or whatever the hell else ill-advised prayer play I’ve seen here the past week.

TLDR: CLF is pretty much the only WSB short interest play with limited fundamental downside; they’re shitting money, and have enough macroeconomic tailwinds to entertain a supply chain logistics class for a semester.

If you think it’s late for CLF you’re probably not aware of the industry landscape or the company’s footing in it.

Edit:

Positions:

CLF 10/15 18c

CLF 10/15 20c

As well as Various other MT and TX September and later calls.

Submitted June 10, 2021 at 06:16AM by olivesnolives
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