Buy the Sector That’s Quietly Rallying Now

The past few weeks have seen investors sour on technology stocks. However, it’s normal in any market for a sector that’s been the runaway winner to take a breather. When that happens, other sectors tend to shine.

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  • With some fear in the markets, defensive areas such as utilities and consumer goods have been holding up. But one sector is also performing well that looks bullish for the economy next year.

    That is the commodity space. The headline winner has been oil prices, but other commodities are performing strongly also. Analysts just boosted Cleveland Cliffs (CLF), a maker of iron ore.

    Shares are up nearly 10 percent over the past year, but are down nearly 33 percent from their 52-week high. Cleveland Cliffs is coming off of steep losses from last year’s peak and drop in commodity prices, with earnings still down by over 40 percent.

    That said, shares are trading at 7 times forward earnings. And with a commodity boom underway, shares could see big returns over time, as commodity trends tend to play out over years, not months.

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  • Action to take: Investors should look to pick up some shares now, and use any drop lower as an opportunity to buy more. At present, Cleveland Cliffs does not pay a dividend.

    For traders, shares are starting to show some signs of resistance to dropping under $14.50. That could suggest an uptrend in the coming months. The December $16 calls, last going for about $0.87, could see mid-to-high double-digit gains on a bounce higher.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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