Is Cleveland-Cliffs Stock a Safe Bet After Earnings? Cleveland-Cliffs (NYSE:CLF) stock remains in sharp decline on the second trading day after posting a strong earnings report on April 22, 2022.

Investors seem to be factoring in demand decline, but is that a safe bet?

Cleveland-Cliffs (NYSE: CLF) stock remains in sharp decline on the second trading day after posting a strong earnings report on April 22, 2022. It could be a case of profit-taking. Prior to the sell-off, CLF stock was up 51% for the year. And it was also up 83% in the last 12 months.

However, with the sell-off extending into a second day, I'm inclined to believe it has to do with a belief that analysts don't believe the company will meet its demand forecast. Nevertheless, if you believe that a company's fundamentals matter, Cleveland-Cliffs offers opportunistic investors an attractive option at a price that puts it about in the mid-range of its 52-week high and low.

The steelmaker posted top-line revenue of $5.96 billion, nearly $2 billion more than the prior year. The bottom line was an even stronger story. The company posted earnings of $1.50 per share which was 6.76% better than analysts' forecast for $1.41 per share.

According to company management, one reason for its stellar results is that it is not reliant on imports. In remarks supporting the company's earnings report, president and CEO Lourenco Goncalves remarked that the Russian invasion of Ukraine supports the case the company has been making to its clients. Specifically, Goncalves notes "...overly extended supply chains are weak and prone to break down, particularly steel supply chains that are dependent on imported feedstock."

By contrast, the Cleveland, Ohio-based company produces all the pig iron and HBI it needs to produce its highly specified flat-rolled steel in the tri-state area of Ohio, Michigan and Indiana.

Some Eye-Popping Fundamentals

On an interview with CNBC, Cerity Partners analyst Jim Lebenthal noted that the Cleveland-Cliffs reported $6 billion of free cash flow (based on EBIDTA) in the last 12 months. That's over 40% of the company's market capitalization that sits at approximately $15 billion as of this writing.

I'll admit to doing a double-take on that number, but it's accurate. And what makes the number more compelling is that the company is expecting to deliver another year of record free cash flow (FCF) in 2022. Furthermore, FCF is one of those numbers that analysts and investors love because it's frequently a precursor of rising earnings.

What if Demand Dries Up?

This seems to be the reason that investors are souring on CLF stock. In the company's February 2022 investor presentation, it acknowledges that over 60% portion of the company's revenue is linked directly or indirectly to the auto industry. In fact, the company has exposure to almost every auto manufacturer in the United States.

Of course, this is a double-edged sword. When demand for automobiles is strong, demand for Cleveland-Cliffs steel would be strong. And the demand for exposed and lightweight steel in the next generation of electric vehicles is likely to increase Cleveland-Cliffs already leading market share.

But if consumer demand dries up, then many automakers may find themselves with a glut of product. On the company's earnings call however, Goncalves gave analysts no indication of slowing demand. In fact, the company says it is seeing increased demand in the auto sector. Plus, the Biden administration continues to push a target of 50% electric vehicles by 2030 and has set aside $7.5 billion to build out a nationwide EV charging network.

And don't forget that the Biden administration will be requiring that new projects under the $1.2 trillion infrastructure package are made with U.S. steel.

CLF Stock Looks Like a Compelling Buy

Even in the time it took me to write this article, CLF stock is showing signs that the bulls are re-entering the trade. But with a price target of just over $30, there's still some upside. And at least two analysts have already raised their price targets since the earnings report.

With that said, investing in commodity stocks is often an imperfect science. However, given the fact that the company has the playing field largely to itself in the short term, I like CLF stock as a buy at this price.