Cleveland-Cliffs Stock Just Keeps Dropping. Buying Opportunity, or a Sign to Steer Clear?

Key Points

• Cleveland-Cliffs is one of the largest steel companies in North America.

• The steel industry is highly cyclical, which changes the investment dynamics around the steelmaker and its peers.

• Aggressive investors might like Cleveland-Cliffs, but more conservative types will prefer this Dividend King competitor.

• 10 stocks we like better than Cleveland-Cliffs ›

Shares of Cleveland-Cliffs (NYSE: CLF) have fallen about 60% from their highs in 2022. That's a crushing price pullback, but hardly surprising given the sector in which Cleveland-Cliffs operates. The steel industry is known for being highly cyclical, and that dramatically changes the equation for investors.

Here's why this sell-off could be a buying opportunity in Cleveland-Cliffs -- and why more conservative investors will probably prefer one of the company's main competitors, Nucor (NYSE: NUE).

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Steel: What goes up eventually goes down

Steel is a crucial industrial metal. It goes into buildings and roads, heavy equipment, automobiles, and machinery. All of these things are costly items that tend to be purchased more often during good economic times. During recessions, spending on big-ticket items is usually curtailed.

Image source: Getty Images.

This is why the income statements of steel companies are so tightly tied to economic activity, making these stocks highly cyclical. This is a vital fact to consider when looking at a steel stock like Cleveland-Cliffs. When times are good, the stock is likely to be flying high. But that could be the worst time to buy it, because the industry pendulum will, eventually, swing the other way. Conversely, when the business is doing poorly and the stock price is languishing, you might want to take a contrarian stance and buy. Again, the industry pendulum is likely to swing the other way, only this time the benefit will be to the upside.

Right now, Cleveland-Cliffs isn't doing very well. In the second quarter of 2025, the company reported a loss of $0.50 per share on an adjusted basis. However, that was an improvement over the adjusted $0.92 loss in the first quarter. The company has been trying to cut costs, and it has idled steel mills as it looks to deal with a weak patch in the steel industry. If you are looking for a steel stock that could see material upside when steel prices recover, Cleveland-Cliffs is a strong option. But it isn't the only investment option.

NUE data by YCharts.

The problem with Cleveland-Cliffs

All steel stocks are cyclical, but some tend to have more volatile businesses than others. Cleveland-Cliffs is more volatile because it uses blast furnaces to make primary steel. This is an older technology that requires large plants that are costly to operate. They need run at high capacities to be profitable. When steel prices and demand are weak, blast furnaces tend to bleed red ink. Dividend King Nucor, another of the largest North American steelmakers, uses more flexible electric arc mini-mills.

Mini-mills are less costly to operate and are, generally, more flexible. To simplify things, electric arc mini-mills can more easily be ramped up and down with demand. That allows them to operate with higher margins through the cycle. Nucor, for example, reported earnings of $2.60 per share in Q2 2025. As you might expect given the dynamics in the steel industry, Nucor's stock has fallen along with Cleveland-Cliffs, but it isn't down nearly as much.

The fundamentally different approach to making steel is what has allowed Nucor to increase its dividend for more than 50 years despite operating in a highly cyclical industry. For conservative investors, Nucor will likely be a better choice in the steel sector. But, it probably won't fly as high during the good years. That's the trade-off for the less dramatic share price declines during the bad years.

Steel stocks could be ripe for the picking

Nucor just warned that its third-quarter results will be weaker than its second-quarter results. So the steel industry could see further headwinds from here. But the key is that this cyclical industry is likely to be most attractive for investors when the industry isn't doing well. That's the situation right now.

If you are an aggressive investor, Cleveland-Cliffs is a way to lean into the industry's cyclical nature. Effectively, the stock's fall is a potential sign to buy. If you don't want to take on as much risk, however, you will likely be better off with Nucor. It tends to remain more profitable through the entire steel cycle. The shares probably won't see as large a recovery, but then they usually won't fall as much when things aren't going well, either.

Should you invest $1,000 in Cleveland-Cliffs right now?

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Reuben Gregg Brewer has positions in Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.