Buy Alert: May 29, 2013

Marcus Haber | May 29, 2013

Buy Alert: May 29, 2013

Trade Details

Buy Cliffs Natural Resources (CLF) July $20 Calls for $1.30 or better

Why?

CLF has been one of investors’ favorite whipping posts for some time now. The stock’s taking another hit today – down 6% as of this writing. That’s after the shares have taken a 47% beating year-to-date. Much of the punishment has been deserved, with the company underperforming expectations nearly across the board.

However, today’s drop has pushed CLF into oversold territory. The stock’s down on macro concerns about the global economy. Blah blah blah – we’ve been hearing that one for the last couple years. Why should today be different than any other day?

After all, CLF still is the largest iron ore producer in North America with over $600 million in operating cash flow. The company still offers a $0.60 dividend. Moreover, the shares are trading at just over half of the company’s book value. That’s extremely low for a company with such positive operating cash flow.

I expect the shares to rebound to at least the 50-day moving average around $20 per share, or even higher to the 20-day moving average of roughly $22. Plus, the 200-day moving average is over $30. Let’s grab CLF calls while there’s plenty of solid upside potential.