Shares of the mining and natural resources company, Cliffs Natural Resources Inc (NYSE:CLF) have fallen more than 10% in the last two trading days owing to glum forecasts for the price of iron ore. Wolfe Research’s Gordon Johnson argues that the spot iron ore prices are hovering around right now of $60/mt, will soon head for a downturn, crossing its multi-year low of $47/mt in the near future. The reason for the gloomy forecast is that when commodity prices fell to less than $47/mt this year, none of the producers limited their capacity, which has lead to a continued supply gut in the market. Johnson expects that the 52Mmt oversupply in 2014 will swell to about 183Mmt in 2015 given the dip in crude steel production in China this year, which will be a first since the 1980’s. The short interest in Cliffs Natural Resources Inc (NYSE:CLF) stood at 42.20% of the float as of mid-June. Moreover, the company’s gross margin of 7.68 is also much lower than the industry’s average of 23.22.
Smart money has already been closing their holdings in Cliffs Natural Resources Inc (NYSE:CLF) during the first three months. Among the hedge funds that we track, a total of 17 firms had invested a total of $110.19 million in the company at the end of March, compared with 26 funds with $166.45 million at the end of the previous quarter.
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Insider trading provides valuable insights into how the company’s mangement expects the business to perform in the future, and we keep a close eye on these trades as well. Lourenco Gonclaves, President & CEO of Cliffs Natural Resources Inc (NYSE:CLF) has purchased more than 300,000 shares of the company so far this year, while no insider sales have been detected thus year.
How are hedge funds trading Cliffs Natural Resources Inc (NYSE:CLF)?
At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, down about 35% from one quarter earlier. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings meaningfully.
Of the funds tracked by Insider Monkey, Casablanca Capital, managed by Donald G. Drapkin and Douglas Taylor, holds the biggest position in Cliffs Natural Resources Inc (NYSE:CLF). Casablanca Capital has a $38 million position in the stock, comprising 100% of its 13F portfolio. Sitting at the Number two spot is David E. Shaw’s D E Shaw, with a $26.4 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other hedgies with similar optimism encompass John A. Levin‘s Levin Capital Strategies, Jim Simons’ Renaissance Technologies, and Cliff Asness‘ AQR Capital Management.
Judging by the fact that Cliffs Natural Resources Inc (NYSE:CLF) has witnessed a declination in interest from hedge fund managers, we can see that there exists a select few funds that decided to sell off their full holdings last quarter. Interestingly, Douglas Dethy‘s DC Capital Partners sold off the largest investment of the more than 700 funds tracked by Insider Monkey, totaling an estimated $7.1 million in stock, while Israel Englander of Millennium Management was right behind this move, as he dumped about $4.4 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by nine funds last quarter.
On a concluding note, although insider trading sends a clear buy signal, given the bearish hedge fund sentiment, low margins, and poor industry outlook, we would wait for the stock to fall more, before a suitable entry point is created.
Disclosure: None
