Cliffs Natural Resources Inc (CLF), Pitney Bowes Inc. (PBI): Do These Hated Companies Offer Opportunities for Profit?

A short bet that looks risks over the longer term

The third company, with 30% of its free float short is United States Steel Corporation (NYSE:X), which shows no real signs of weakness. US Steel’s production capacity for the first quarter was 30.8 vs. 32.3 million tons in the same period last year, although the whole steel industry is reducing output as demand falls. The US steel industry is not expected to return to growth until 2015.

Still, United States Steel Corporation (NYSE:X) is not in a precarious financial position and is well placed to wait for growth. Although the company made a loss for the second quarter, adding back in depreciation, cash generation from operating actives was $384 million and free cash flow was $180 million. Additionally, net debt has fallen 15% from the second quarter of 2012 without a noticeable increase in common shares in issue.

With a net asset value of $24 per share, debt to equity standing at 80% and the current ratio standing at 1.7 times, the company currently looks to be an undervalued stock, which is financially stable. So, unless the company takes a huge loss sometime soon, it has the ability to last until the steel market returns to growth in 2015. So, on that basis I believe shorts should beware US Steel, and as a long term play, the company looks appealing.

Foolish summary

These three companies are the most shorted in the S&P 500, but both Pitney Bowes Inc. (NYSE:PBI) and US Steel do not appear to be in positions that justify the market’s hatred. Indeed, Pitney is turning itself around and US Steel has a strong balance sheet, well placed to ride the US recovery. On the other hand, Cliffs Natural Resources Inc (NYSE:CLF) looks to be in a precocious position and I would stay away.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Do These Hated Companies Offer Opportunities for Profit? originally appeared on Fool.com.

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