United States Steel Corporation (NYSE:X)
Why are investors shorting United States Steel Corporation (NYSE:X)?
Just like we witnessed with the previous two companies, United States Steel Corporation (NYSE:X) saw its short interest fall in May, but that still hasn’t alleviated the pessimism surrounding steel prices, rampant oversupply, and the belief that weak steel demand in Europe and other developed countries will continue to weigh on its prospects. It also doesn’t help that Goldman Sachs Group, Inc. (NYSE:GS) recently lowered its steel-price estimates due to falling iron-ore prices.
Is this short interest warranted?
I do fully expect China and other emerging markets to step up at some point in the not-so-distant future and add the demand sorely missing from developed countries at the moment. That still won’t make United States Steel Corporation (NYSE:X) a particularly intriguing option: It has a mountain of debt and hasn’t turned an annual profit since 2008. U.S. Steel just might be your worst possible choice in the steel sector, and I’d suggest looking elsewhere.
Cliffs Natural Resources Inc (NYSE:CLF)
Why are investors shorting Cliffs Natural Resources Inc (NYSE:CLF)?
Iron-ore and metallurgical-coal miner Cliffs Natural Resources Inc (NYSE:CLF) has attracted the interest of short-sellers as iron ore prices have retreated to levels not seen since last summer. Iron ore, a key component to steel, has fallen for many of the same reasons U.S. Steel is weak: Demand isn’t there, and oversupply remains an issue. These issues caused Cliffs Natural Resources Inc (NYSE:CLF) to slash its dividend by a whopping 76% earlier this year in order to cut expenses and conserve its cash flow.
Is this short interest warranted?
Unlike U.S. Steel, Cliffs Natural Resources Inc (NYSE:CLF) is capable of turning a profit in a slow-growth environment and has done a good job of rewarding shareholders with a big dividend in recent years. To me, it seems only a matter of time before iron ore prices rebound and emerging markets fill the void in demand left by much of Europe. I’ve had Cliffs on my personal Watchlist for some time now and have considered entering a position if it sees extended downside pressures.
Frontier Communications Corp (NASDAQ:FTR)
Why are investors shorting Frontier Communications Corp (NASDAQ:FTR)?
Frontier Communications Corp (NASDAQ:FTR) has struggled under the weight of its asset acquisitions from Verizon Communications Inc. (NYSE:VZ). Thinking it would be getting a veritable cash cow of rural landline assets from its purchase, Frontier Communications Corp (NASDAQ:FTR) is discovering that infrastructure upgrades and wireless-device proliferation are making it nearly impossible to grow its bottom line as consumers cancel their landlines at a steady rate. To put things in perspective, you know the landline attrition rate is bad when the highlights of the company’s quarterly report include that attrition rates slowed to just 1%!
Is this short interest warranted?
Everything is going to come down to Frontier’s delectable dividend, which is yielding nearly 10%. If Frontier can keep its costs under control and its payout ratio steady, then shareholders could double their money in a tad more than seven years if the yield stays around 10% and they reinvest those dividends. Of course, there are plenty of other variables at play, such as the continued proliferation of mobile devices and whether or not Frontier’s ancillary businesses like broadband pick up the slack. Overall, I’m modestly optimistic on Frontier at these levels but would suggest that investors considering this stock understand that it comes with plenty of risks.
