With a P/E ratio of 3.3, Cleveland-Cliffs is a good deal is

Cleveland Cliffs (NYSE:CLF) reported strong second quarter results on July 22, while the CLF stock valuation remains extremely low. Importantly, the macroeconomic and geopolitical picture is generally positive for the steel producer.

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Source: Pavel Kapysh / Shutterstock.com

Given these points, I recommend that longer-term value investors buy CLF shares. The company saw its share price rise about 5% on July 22 following positive earnings news.

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Strong profit in the second quarter

Even with the important caveat that Cleveland-Cliffs was easy to compare to Q2 2020 due to the coronavirus pandemic, the company’s annualized profit is were quite impressive.

Specifically, last quarter’s revenue rose to $5 billion, up from just $1.1 billion in the same period a year earlier. And earnings per share rose to $1.33, compared to a loss per share of 31 cents in the second quarter of 2020.

Of course, the company is benefiting greatly from the extremely strong demand for cars and new homes in the US, as well as for home improvement products such as playground equipment, desks, furniture and appliances.

Strongly positive macro and geopolitical catalysts

Since the beginning of this month, the benchmark price of hot rolled steel had reached a record $1,825, up from $500 to $800 prior to the pandemic.

While steel prices are likely to fall as production catches up with demand, they should remain quite high as the microtrends I mentioned earlier continue.

Meanwhile, although economic growth in China is slowing, it is still extremely strong. The GDP of the Asian country jumped 7.9% year on year in the second quarter, down from 18.3% in the first quarter.

Moreover, Levi Strauss (NYSE:LEVI) and pepsi (NASDAQ:FUT) both recently made positive comments on the Chinese economy, with the jeans maker reporting that its second-quarter sales were up 3% compared to the same period in 2019.

It is also remarkable that Europe huge economic stimulus initiative, while the US is about to do the same. Both stimulus packages have a strong focus on renewable energy, including wind energy, which is quite steel-intensive.

And the move to electric vehicles – which is required by law in the EU, California and China – could further boost car sales and production in the longer term, as manufacturers build many more EVs to meet the standards and use tens of millions of consumers rush to buy their first electric car.

Taken together, all of these trends should greatly help Cleveland-Cliffs and CLF stocks in the short, medium and long term.

The geopolitical picture

For Cleveland-Cliffs and other US-based steelmakers, I believe the geopolitical situation is mixed, but overall positive.

specifically, the EU and the US have started talks that seem aim to abolish the 25% tariff on steel imposed by the administration of former President Donald Trump. It is clear that the elimination of the tariff, accompanied by no countermeasures, would have a significant negative effect on Cleveland-Cliffs and other US-based steel producers.

However, I believe that at the moment Europeans greatly prefer the Democratic Party to the Republican Party, which is still heavily influenced by Trump.

Therefore, I do not expect a final agreement on steel tariffs to significantly harm the US steel industry, as such an outcome could significantly damage Democrats’ chances of retaining the White House and Congress.

The parties can agree to reduce the tariff by 15% to 30%, while introducing production caps and/or introducing some sort of export quota. Both last two measures would help to keep prices high.

And again, I think it is highly unlikely that EU and US moves will harm the US steel industry, including Cleveland-Cliffs.

The Bottom Line on CLF Stocks

Making the stock a great name for value investors, Cleveland-Cliffiff’s P/E ratio is a really minuscule 3.3, according to Yahoo! Finance. In addition, the company’s positive catalysts make it a great name for investors at a reasonable price (GARP).

At the date of publication, Larry Ramer had no (direct or indirect) positions in the securities referred to in this article.

Larry has spent 14 years researching and writing articles on US stocks. He was employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks were solar stocks, Roku and Snap. You can reach him on StockTwits at @larryramer. Larry started writing columns for InvestorPlace in 2015.

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