Is now the time to load up on Fortescue shares?

A man pulls a shocked expression with mouth wide open as he holds up his laptop.A man pulls a shocked expression with mouth wide open as he holds up his laptop.

Could the Fortescue Metals Group Limited (ASX: FMG) share price be attractive enough to load up on?

Fortescue is one of the biggest iron ore miners in the world along with Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP).

Iron ore is one of Australia’s biggest exports. At the right price, it can generate billions of dollars for the ASX mining shares.

While BHP and Rio Tinto generate sizeable profits from commodities other than iron ore, Fortescue has been heavily reliant on iron ore earnings.

Therefore, what happens with the iron ore price can have a large impact on investor sentiment about the Fortescue share price and its profitability.

What’s happening with the iron ore price?

China is the world’s biggest purchaser of iron ore. So demand from that country can have a major impact on the iron ore price.

CommSec noted this morning that the iron ore futures price was up 1.5% to US$144.40 per tonne. It also noted that over the week the iron ore price had gone up 8.2%.

Perhaps unsurprisingly, the Fortescue share price has more than 8% since 27 May 2022.

It has been reported by various news organisations, including the ABC, that Shanghai’s lockdown has finally lifted. GDP (gross domestic product) growth in the Asian superpower is expected to slow this year.

According to the media, including the ABC, “China’s Premier Li Keqiang held an emergency meeting with thousands of representatives from local governments and companies, warning that China was facing a much worse economic situation today than in 2020 when the pandemic began.”

It is possible that the Chinese government could decide to invest for growth and reignite the Chinese economy. This could be useful for the iron ore price, profit, and the Fortescue share price.

My views on the Fortescue share price

There’s no doubt that Fortescue is currently benefiting from the relative strength of the iron ore price. With Fortescue’s commitment to paying dividends, shareholders could continue to see quite large dividends over the next year.

However, with a cyclical business like Fortescue, I think that it’s better to buy a resource business when the commodity price is lower. When iron ore is lower, it’s likely to mean that the Fortescue share price would be lower as well.

How much lower? Looking at the last 12 months, I think a Fortescue share price under $18 would start to look interesting again. However, part of the reason why I’d consider Fortescue at that price would be the promising future of the green division. Fortescue Future Industries (FFI) is looking to build a global portfolio of green hydrogen production facilities. Other areas of FFI include a high-performance battery division.

However, the Fortescue share price would need to get back to $16 or even $15 for me to ‘load up’ on the ASX mining share. This would give a good margin of safety, in my opinion.

The post Is now the time to load up on Fortescue shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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