It thus comes as a surprise that shares of Cliffs Natural Resources Inc (NYSE:CLF) jumped 4% recently. The company is a producer of iron ore and metallurgical coal. Both of these commodities are in abundant supply as factory output remains low and news on economic activity across the world continues to remain grim.
Cliffs Natural Resources Inc (NYSE:CLF) recently reported earnings and the results were encouraging. The core US iron ore business was strong on all fronts, full year sales guidance is also up.
North American Coal also beat on all fronts; price, costs and volume. Although the earnings contribution from iron ore is modest, investors should applaud the operational management team responsible for its turnaround.
In addition, low natural-gas prices continue to play the bull in the China shop. Trading close to its 52-week low, the stock is attractively priced from a future earnings perspective, which is also highlighted by a forward price-to-earnings ratio of 8.1.
But there’s more to this story than just value buying. The stock has a high short ratio of 23%, which indicates the market is betting that the company will not be able to control costs and will post disappointing results. Given its financial performance in recent quarters, it’s not surprising.
Underestimated play
Alpha Natural Resources, Inc. (NYSE:ANR) is also a coal producer, and by this definition it is free of fancy valuations. The company supplies steam and metallurgical coal to large utilities and industrial customers as fuel for electricity generation. As natural gas is making unabated inroads in this market, coal companies have been on the receiving end and Alpha Natural Resources, Inc. (NYSE:ANR) is no exception.
The stock has lost 44% over the last year and was recently available at $7.90, compared to its 52-week range of between $5.28 and $17.30. This is a loss- making company, so profit-valuation ratios are not applicable, but a 65% discount to its book value per share screams undervalued.
Most brokerage houses predict higher valuations for the stock as almost everyone has a ‘Hold’ or ‘Market Perform’ rating on it.
The market continues to underestimate Alpha Natural Resources, Inc. (NYSE:ANR)’s industry-leading metallurgical and export capacity, well-capitalized mines and asset potential.
Alpha Natural Resources, Inc. (NYSE:ANR)’s assets, product mix and capital re-positioning are gaining positive traction as the global metallurgical markets bottom. At current levels, it might be a good time to buy for risk-tolerant investors.
Poster boy turns villain
Finally, Molycorp Inc (NYSE:MCP) happens to be a golden goose turned black swan. The stock is down 83% over the past 12 months, but has recovered nearly 5% in recent days. The jump in the stock appears to be on account of aluminum producer Alcoa Inc. (NYSE:AA)’s bumper earnings rather than a positive development for the company or the sector. The company produces rare earth metals, which are used in almost all products anything to do with electronics.
However, the big bet was that the company’s fortunes would go through the roof once electric vehicles were bought and sold as candies. Of course, this never happened and what we see as of now is another attempt by short-sellers to make money off this beleaguered poster boy.
Molycorp Inc (NYSE:MCP) is also a play on long-term rare earth oxide fundamentals and execution. The company has high-quality assets with a proven operating history, and the NEM-T acquisition has added downstream integration. Execution risks, declining spot prices, and an SEC investigation, however, are near-term overhangs.
However, this can be viewed differently as the company trades at nearly a 38% discount to its book value per share and a forward price-to-earnings ratio of 22, which offers some hope. Some more help coming in from national governments is primed to help sales of electric cars.
But while it is unclear if there will be any material business repercussions from the SEC investigation, lingering uncertainties are likely to prevail until the findings are publicly disclosed.
Foolish bottom line
Overall, there appears to be nothing going in favor of these companies but it could just be the right time to start buying them. This is especially true for Molycorp Inc (NYSE:MCP), which still offers near-future hopes of profitability. However, investors would do well to keep an eye on latest quarterly earnings for indications of a turnaround before taking a plunge.
The article Dead-Cat Bounce or Genuine Value Opportunity? originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
