Lordstown Motors catches a break, Cleveland-Cliffs gains ground, stocks falter
WASHINGTON – Mr Market continues to wobble Monday, as options expiration Friday and this week’s Fed meeting loom. But the exciting Ohio Show continues. Cleveland-Cliffs (NYSE:CLF) is attempting to recover from last Friday’s intense bout of selling, while beleaguered Lordstown Motors (RIDE) actually caught a break this afternoon, reversing, for at least a moment, the savage beating its shares took last week as its CEO and CFO suddenly resigned without warning. But today we learned some potentially positive news that might help raise morale (and maybe $$$) at hapless Lordstown Motors.
We took a few well-deserved days off to visit with friends up in northern Ohio where all this recent action has been occurring. Prior to heading north, we duly noted Cleveland-Cliffs’ recent return to respectability on the Big Board, largely due to its successful integration of not one but two steel manufacturing firms, plus the initial success and recent official Grand Opening of its innovative new hot briquetting iron ore facility in Toledo, Ohio.
More good news for Cleveland-Cliffs
A release via PR service Briefing.com (no available link), provides more color to the Cleveland-Cliffs narrative we laid out in last week’s article, even as it adds another heaping helping of positive news for Cliffs shares.
“Cleveland-Cliffs …, which today raised its adjusted EBITDA guidance for Q2 and FY21, is flat-rolling the competition. The upbeat guidance is further evidence that CLF’s M&A activity over the past year is beginning to bear fruit more quickly than the company may have expected. In March 2020, CLF acquired AK Steel, and in December 2020, it closed on its purchase of ArcelorMittal USA.
“CLF has embarked on a remarkable transition, previously never producing steel before its AK Steel purchase and only mining iron ore, a key raw material used to make steel. By moving downstream with its acquisitions of two major US steelmakers, CLF has become the largest flat-rolled steel producer in North America. Flat-rolled steel is an important distinction; other producers make long products (beams, rail, wire, rods) while CLF focuses on flat-rolled products such as sheets and tin plates. In the end, what these deals tell us is that CLF is trying to consolidate the integrated producer side of the equation and use massive scale and cost savings to compete better with mini-mills like Steel Dynamics [NASDAQ:STLD] and Nucor [NYSE:NUE].
Cleveland-Cliffs Q2 guidance improves, impressing some analysts
“Moving to Q2 guidance, CLF expects adjusted EBITDA of $1.3 bln, higher than previous guidance of $1.2 bln and above analysts’ expectations….
“Beyond the numbers, CLF says it sees a resilient steel pricing environment. Other steel producers such as NUE and STLD have recently shared similar sentiments. CLF noted in its Q1 presentation that stimulus money provided to the population is being spent on consumer goods such as appliances and cars, benefiting the steel industry. Also, flat-rolled steel spot prices have been improving, as customer inventory levels were deficient and demand has steadily improved.”
Unmentioned here is the already significant contribution already being made to the Cleveland-Cliffs bottom line by its new Toledo facility. The only potential fly-in-the-ointment in Cliffs’ dramatic resurrection story may unfold in, where else, Washington, D.C.
But what about those Trump steel tariffs still in place?
Of course, we’re talking about the possibility that the Biden Interregnum, which seems dedicated to killing off all the economic and job-growth gains of the previous administration, may roll back President Trump’s somewhat controversial tariffs on imported steel.
Those tariffs, at least in part, were designed to thwart the importation of unfairly subsidized foreign steel. Both Cleveland-Cliffs and its investors, including a new batch of enthusiastic Redditors, may just have to wait and see on that one.
Will overhyped Lordstown Motors rise again? Or at least for the first time?
Elsewhere in northern Ohio, the badly battered shares of would-be electric truck manufacturer Lordstown Motors (NASDAQ:RIDE), got hammered again Friday with news its CEO and CFO were seeking exciting new opportunities elsewhere.
But Monday afternoon, after recounting RIDE’s recent fiscal woes and possible stock chicanery, CNBC reported a potentially more positive series of events.
“Embattled electric truck company Lordstown Motors has enough funding to operate through May 2022 and remains on track to begin limited production of its Endurance electric pickups in late-September following an executive shakeup that ousted the start-up’s CEO and founder, executives said Tuesday.
“The company’s new Chairwoman Angela Strand called it a ‘new day’ for the company, which raised bankruptcy concerns after warning investors last week that it had ‘substantial doubt’ about its ability to continue as a going concern in the next year.”
That last phrase always sends chills down the spines of investors. It’s accounting-speak. It artfully expresses the dismal fact that a company is so low on $$$, it could cease to be at a moment’s notice. That’s scary for small investors that bought these new shares earlier on all the clean energy hype surrounding RIDE.
For now, this currently iffy company currently lives in part of GM’s abandoned former Chevrolet plant in Lordstown Ohio. When GM left, the area seriously needed new jobs. RIDE arrived to provide at least some of them. But now, will those new jobs end up fading away?
Light at the end of the Lordstown tunnel?
Nonetheless, noted CNBC, at least some investors cheered Strand’s positive but perhaps still-doubtful prognostication.
“Shares of Lordstown Motors soared by as much as 14% during the event before leveling off at about $10.20 a share, up 10.2%.
“‘It’s a new day at Lordstown and there are no disruptions, and there will be no disruptions, to our day-to-day operations,” she said during a webcast for the Automotive Press Association. “We remain committed to inspiring, building and maintaining confidence and transparency in our relationships with each other at Lordstown and, very importantly, with our customers, our partners, our suppliers and our shareholders.’”
We’ll wait and see on this, although RIDE could prove an interesting spec investment at today’s prices. It all depends on one’s risk tolerance, of course. And the risk here for a company that has yet to turn out a single physical truck remains high indeed. In our opinion, they’ll need another capital infusion to pull this off. But at the moment, we’re not sure they’ll get one from the bigwigs that staked their IPO to begin with.
To be continued…
Tale of the Charts: Mr Market taking an ominous turn? The McClellan Oscillator seems to think so…
Mr Market himself remains nervous, as he always does, about this Friday’s expiring batch of options. That’s sure to make his direction fairly unpredictable at best.
Added to the mystery is where the Fed will come down on this issue. The nation’s central bank still seems to view the recent bout of hyperinflation as “transitory.”
But if the Fed says a single word about hiking interest rates, look out. The armada of short-sellers already committed to a big-time market crash could soon be rejoicing in the streets. If stocks tank like the bears think they will. They’re locked and loaded for a full-fledged “taper-tantrum” as has occurred before in similar circumstances.
On the other hand, even positive news from the FOMC’s Wednesday report could send Mr Market’s expected downturn into reverse.
Our favorite measure for predicting Mr Market’s next extreme move, the McClellan Oscillator, hasn’t gifted us with an optimistic outlook. You can see this in the chart below.
Note the recent bullish high. It’s easy to see (on the right of this chart) that what follows is a series of lower highs. This is occurring as the bullish pressure comes off and the selling begins. If you look at previous versions of this pattern moving left, you’ll see this same pattern tends to lead to a big drop below the zero line. That means the selling with either continue and / or increase in intensity.
… but the VIX doesn’t look too scary. Yet…
But the VIX volatility index chart, updated mid-afternoon Monday, indicates otherwise. It shows a modest increase in volatility, indicating most investors aren’t scared. Yet.
Should we see this measure begin to soar, that’s our best sign that the bears are preparing for a feast. But until we see this kind of jump, we believe the VIX is at odds with the McClellan Oscillator.
Which means that at the moment, confusion reigns. We continue to dump smaller, weaker, but profitable positions. But we also continue to raise cash. “Sell in May” didn’t work. But that doesn’t necessarily mean we shouldn’t “Sell in June.”
Time to tread carefully.
—Headline image: Cartoon by Garrison. Reproduced with permission and by arrangement with Grrrgraphics.com.