Analyst expects big gains for Cliffs shares

Analyst recommends Cliffs shares, expects competitors' iron ore supplies to be 'a trickle'

Associated Press

NEW YORK (AP) -- A JPMorgan Chase analyst said Monday that Cliffs Natural Resources Inc. shares could double in value this year, and a potential "flood" of new iron ore supplies won't materialize.

THE OPINION: Analyst Michael Gambardella rates the shares "Overweight" with a price target of $40. He added Cliffs to a portfolio of strongly recommended stocks.

Gambardella said Wall Street is concerned that several competitors will introduce a lot of new iron ore supply into the Great Lakes market, taking a large bite out of the Cleveland company's income. He doesn't see that happening.

"We believe the feared flood will ultimately result in a trickle," Gambardella said. He wrote that proposed projects by U.S. Steel Corp. and AK Steel Holding Corp. won't affect the iron ore supply in the Great Lakes, and an Essar Group project will come online gradually and with higher costs than other analysts expect.

THE STOCK: Cliffs lost 11 cents to $18.91 in afternoon trading. The stock fell about 12 percent last week and reached a four-year low of $17.95 on Wednesday. A Morgan Stanley analyst downgraded it to "Underweight" from "Equal-Weight" that day, saying iron ore prices are declining again and new supplies are coming to the market. Analyst Evan Kurtz also said the current price of Cliffs shares didn't reflect its Asia business, where its reserves are winding down.

Cliffs shares have lost almost half their value since the company reported fourth-quarter earnings on Feb. 12. At the time it said iron ore prices were likely to stay volatile in 2013, but demand should remain healthy because of high demand in China for raw materials used to make steel. Over the last year the stock has fallen about 73 percent.

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