Shares of Cliffs Natural Resources Inc. (NYSE:CLF) jumped 5.1% in Wednesday trading, as news began to filter out of a (small) wave of insider buying among corporate insiders of the iron and coal miner.
As reported in a series of Form 4 filings with the SEC, two Cliffs directors, and the company’s CEO as well, have made significant additions to their stock holdings over the course of the past week. Specifically:
-On May 21, 2015, Mr. Douglas C. Taylor, a member of Cliffs’s Board of Directors, reported doubling the number of shares he holds “indirectly,” in the form of a family trust for his children, from 7,200 shares to 14,400. Mr. Taylor apparently paid an average price of $5 per share for these securities. Additionally, the filing indicates that Taylor directly owns 7,933,034 Cliffs shares, or about 5.2% of all shares outstanding.
-On May 26, fellow director Mr. Michael D. Siegal acquired 9,500 Cliffs Natural Resources Inc. shares at an average price of $5.20 per share, increasing his indirect ownership stake (also by way of a trust) to 16,700 shares. Mr. Siegal also reports owning 17,010 shares directly, and own Cliffs preferred shares as well.
-On May 21 and May 26, company Chairman and CEO Lourenco Goncalves made purchases that in total amount to 200,000 shares (acquired as prices ranging from $5 to $5.08). In so doing, he tripled the size of his indirectly owned stake in the company to 300,000 shares (all held in trust). This is in addition to Mr. Goncalves’s 264,137 shares owned directly.
According to our insider transactions database, as recently as March, Goncalves owned precisely zero Cliffs shares, despite having served as the company’s CEO since August 2014.
What does it mean to you?
Seeing the company CEO make such large investments in Cliffs Natural Resources Inc. all of a sudden, investors are naturally responding by buying shares themselves — probably on the assumption that Mr. Gonvalves knows something that they do not. But are they right to do so?
Call me a pessimist, but I’m not convinced they are right. Here’s why:
Although analysts who follows Cliffs agree the company will probably earn a profit next year, they could be wrong about that. The future just isn’t that clear. What is certain is that at present, Cliffs Natural is losing money and mired in debt, with a balance sheet showing nearly $3 billion in debt against cash reserves of just $356 million, according to Yahoo! Finance data — and a stock that’s been going nowhere but down. Or at least a stock that was going nowhere but down until news of the insider buying surfaced.
Personally, I fear that if that’s all that Cliffs Natural Resources Inc. has going for it, this stock’s rally will run out… right around the time the insiders stop buying.
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