How Low Will Cliffs Natural Resources Go?

Shares of Cliffs Natural Resources (NYSE: CLF  ) hit a 52-week low yesterday. Let's see how it got here and whether more dark clouds are ahead.

How it got here
Cliffs Natural makes two main products: iron ore and coal. The demise of the thermal coal market and coal stocks like Alpha Natural Resources (NYSE: ANR  ) , Arch Coal (NYSE: ACI  ) , Patriot Coal, and other producers has illustrated the weakness in that market, but until recently, metallurgical coal and iron ore have kept Cliffs Natural from the same fate.

Recently, however, iron ore and metallurgical coal prices have tumbled, and so have Cliffs Natural Resources and competitors like Peabody Energy (NYSE: BTU  ) and Walter Energy (NYSE: WLT  ) were somewhat insulated from the drop in thermal-coal demand.

Iron Ore Spot Price (Any Origin) Chart

Iron Ore Spot Price (Any Origin) data by YCharts.

As prices dropped, so have financial results, which can be seen in the table below. Walter and Alpha Natural are both losing money, so their quarterly earnings have turned negative.

Company

Price/Book

Quarterly Revenue Growth

Quarterly Earnings Growth

Forward P/E

Cliffs Natural Resources

0.7

(26%)

(85.8%)

9.4

Peabody Energy

1.1

3.9%

(84.3%)

13.2

Walter Energy

1.6

(10.4%)

N/A

24.9

Alpha Natural Resources

0.3

(29.2%)

N/A

N/A

Source: Yahoo! Finance.

Just the fact that Cliffs is still making money makes it one of the better miners around, but it doesn't make it a buy for investors.

What's next?
The future of Cliffs Natural Resources depends on how well the global economy does over the next few years. Another recession, potentially brought on by the dreaded fiscal cliff, could leave it, and many competitors, in ruins. A booming economy could be a huge win for investors.

The stock is too risky for me in the current environment, but the CAPS community has given it a four-star rating, so a lot of people are bullish on the stock.

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