With shares touching multiple tops, Cleveland-Cliffs Inc. (NYSE: CLF) and the resource sector could be at risk of falling sharply if the escalation in the trade war between China and the U.S. continues. Investors may need to shift away from companies that rely on China or the U.S. for sales.
Despite the upside potential in Cleveland-Cliffs, the stock could be at risk of profit-taking as investors price in the near-term uncertainties in international trade. Higher tariffs benefit no one as higher prices on goods eventually hurt demand. For CLF investors, the neutral to bullish analyst coverage helped lift the stock from the November 2017 lows.
Instead of holding CLF stock, investors may want instead to hold BHP Billiton Ltd. (NYSE: BHP) or Rio Tinto (NYSE: RIO). BHP pays a dividend yielding around 4.5% while Rio Tinto’s dividend yields 4%.
Freeport-McMoRan (NYSE: FCX)’s downtrend is more pronounced than Cliffs'. Though the company has an unfavorable debt/equity profile (of 1.4 times), an asset sale could change that.
The markets are skeptical that Freeport-McMoRan’s sale in a majority stake of its Grasberg mine for $3.85 billion to the Indonesian government will go through. If the drop in FCX stock is big enough, bringing the stock down to the $14 - $15 level, investors could start a position in the copper company.
And if the Grasberg mine sale succeeds, it removes an unknown and shores up the company’s balance sheet.
