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Before I found TMF I bought a chunk of Cliffs Natural Resources at around $45/share, thinking it payed a nice dividend and would grow with a recovering economy and infrastructure projects. It is down over 50% since then and difficult to read the reports. Do I wait this stock out for years? Do I bail on at least half of the position? Wondering if the remaining value would be better deployed elsewhere? The rest of my portfolio is much more hopeful. Would appreciate your thoughts! Annieho
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Hello annieho:

I asked the same question last week and got no responses from the MF community.

I am down 52% today, and am seriously thinking about cutting my losses, selling, and deploying the capital elsewhere.

And you? Thinking about selling?

I wonder why the community is silent on this one.

docdocatl
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I wonder why the community is silent on this one.

Cliffs is not widely followed at TMF, as evidenced by the mere 60 posts in the last 12 years. I've been in and out a couple of times in the last 10 years, and currently hold at a loss, too. My first impression to the recent drop was to hold, reinvest the dividend, and wait for the industry to cycle back into favor. I'm not so sure I'll follow that strategy, though, since there are other, better opportunities out there right now. The dividend cut and the fact that the expected "bottom" keeps dropping further, is not reassuring. Management is not inspiring a lot of confidence right now, either.
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One option might be to sell and put back part of the proceeds into long
term LEAPS while investing the rest elsewhere. Jan 2015 18 LEAPS are
around $5 today. If the iron ore market recovers before then, these
should likely do quite well and will capture most of the upside while
limiting your downside. Long term calls are generally cheap nowadays due
to the low interest rates.

I myself have faced some losses on VALE, MT and RIO but have doubled down
using a few cheap LEAPS which I can afford to lose. However, do keep in
mind that it is quite probable that the LEAPs will expire worthless and
I only like them because of the risk/reward ratio. For eg., even if CLF
recovers back to 33 in 2 yrs time (hardly implausible), the calls would
have tripled in value.
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Plus the recent article highlighted that the company's expenses to produce their iron ore is much higher than that of their competitors.

So this combination does not seem to bode well for the company.

I am now down 53% in an up market, and am thinking about selling.

And you?
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Hi docdoc,
I sold 1/3 of my position today (painful) but figured I could at least put that cash to work elsewhere. I am learning lessons! These are my early days of doing my own investing. I think what I'm learning is to be more patient and to not look at my portfolio quite as often as I have been. Another lesson is to not chase a stock when it's made a sharp increase...let it settle. So with my remaining 2/3 of CLF I'm going to wait and hope that iron ore recovers...it may take several years. Annie
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And you?

I'm holding. The market looks a bit toppy to me, so I don't see any reason to lock in a big loss on CLF and roll it into another issue that may fall in a Spring swoon, compounding the loss. Later in the year, I'll reassess.

I don't view Cliffs as a broken company, but the dividend snafu and the under performing Canadian operations call management into question. They need to demonstrate they can regroup in time to capitalize on the next leg up in the steel industry.
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After the negative report on the high cost of doing business to produce its iron ore, versus its competition's costs--in addition to the dividend cut--I decided that the business thesis had changed for me.

I was then down 51% (yesterday), and sold my entire position, as the only option I saw was to ride it down to a possible total loss of capital.

I decided that the business model did not seem positive for recovery of share price, and so I figured I'd be better off deploying the funds into something a bit more tried-and-true, such as KMI, rather than tying up capital for numerous years. Okay if there's a hefty dividend, but CLF took care of that, didn't they?

Good luck with your hold.

docdocatl
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Good luck with your hold.

Good luck to you, too. It's always best to move on when your original premise for buying has changed.

Interestingly, Cliffs is now yielding 3.2% with a forward P/E of ~10, but there is still much uncertainty.
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CLF has now reached the 23 breakeven price with more than 1.5 years to go
- 33 is looking significantly more achievable within this time frame
now though we are very far from having cleared the waters.
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Your strategy sounded sensible when you posted it a month ago, it looks like a good call now.
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