Steel manufacturer Cleveland Cliffs (CLF) reported 4Q21 earnings before the open Friday. Despite a less than stellar report, it shows that commodity stocks are the best value in the market.
CLF sold 19% less tons of steel compared to 3Q21 resulting in 11% and 25% sequential declines in revenue and adjusted EBITDA, respectively. In addition, despite an average selling price of $1423/ton in the quarter, CLF forecast an average selling price of only $1225/ton in 2022. The stock is currently -2%.
However, unless you think steel prices are set to fall dramatically – which seems highly unlikely given burning hot inflation – CLF is ridiculously cheap. CLF reported adjusted EBITDA of $5.3 billion for full year 2021 with an average selling price of $1187/ton. Given CLF’s steel price forecast and the state of inflation, it’s hard to imagine adjusted EBITDA being lower in 2022. That means the forward price to adjusted EBITDA multiple is two at most.
While most investors want to pick a bottom in tech, the real value is in the commodity space.