Tag: Motley Fool Australia

The S&P/ASX 200 Index (ASX: XJO) has been on strong form over the last few trading days, which has led to a number of shares storming higher.

A few shares have even climbed so much they have just hit record highs.

Three shares which are flying high right now are listed below. Here’s why they just hit record highs:

Ansell Limited (ASX: ANN)

The Ansell share price reached a record high of $35.00 on Tuesday. Investors have been fighting to get hold of the health and safety products company’s shares due to the increasing demand it is experiencing during the pandemic. This has particularly been the case for its hand and body protection solutions which offer protection from infective agents. In light of this strong demand, the company was able to reaffirm its guidance. It expects earnings per share in the range of 112 US cents to 122 US cents in FY 2020.

Fortescue Metals Group Limited (ASX: FMG)

The Fortescue Metals share price jumped to a record high of $13.95 yesterday. Investors have been buying the iron ore producer’s shares due to the resilience of the price of the steel making ingredient during the pandemic. With the iron ore price at this level and Fortescue on track for record shipments this year, the miner looks well-placed to deliver bumper profits and free cash flows. This is likely to lead to the company rewarding shareholders with generous dividends and potentially share buybacks.

Pushpay Holdings Ltd (ASX: PPH)

The Pushpay share price stormed to a record high of $6.80 on Tuesday. The donor management system provider’s shares have been racing higher since the release of its full year results earlier this month. Investors were impressed with Pushpay’s 1,506% increase in EBITDAF to US$25.1 million and its very positive guidance for FY 2021. Management expects its EBITDAF to grow 91.2% to 107% next year. But perhaps even better is the company’s longer term ambition of winning a 50% share of the medium to large church market. This represents a US$1 billion revenue opportunity, which is materially more than FY 2020’s operating revenue of US$127.5 million.

More reading

• Here’s why the Fortescue share price hit an all-time high today
• 3 fantastic ASX shares to buy now to get rich later
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Could ASX 200 iron ore shares save the Australian economy?
• 3 ASX shares that will have strong dividends in 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia has recommended Ansell Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Is the Macquarie Group Ltd (ASX: MQG) share price a buy? It’s still down 30% due to the worries about the coronavirus impacts on its profit.

A couple of months ago on 23 March 2020 Macquarie’s share price actually fallen to around $72, so it has actually gone up 47% since then. But is it a buy now? A 30% decline is still a hefty discount to the pre-coronavirus price.

Macquarie is clearly going to experience some financial pain during the rest of the 2020 calendar year. It’s why the global investment bank recognised FY20 credit and other impairment charges of around $1 billion, up from $552 million last year, primarily related to the potential economic impacts of the coronavirus pandemic.

The second half net profit of $1.274 billion was down 13% on the first half of FY20 and down 24% on the second half of FY19. It’s clear that the profit is being hit and the Macquarie share price is matching that trajectory. Assets under management (AUM) were pleasingly up by 10% to $606.9 billion over the year. This provides a reliable source of revenue.

What about the Macquarie dividend?

The Macquarie Board don’t have a lot of control over the Macquarie share price but you can make interesting conclusions from the dividend decision.

Macquarie decided to halve the final dividend to $1.80 pre share, down from $3.60 a year ago. The total FY20 dividend was $4.30 per share, down 25%.

I think Macquarie shareholders can be quite pleased with that final dividend. Keeping more capital on the balance sheet is a good idea – no-one knows what’s going to happen next. But getting income is still good. 

Macquarie did still pay a dividend, unlike Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) which deferred the dividends. And National Australia Bank Ltd (ASX: NAB) cut the dividend by even more than Macquarie.

Is the Macquarie share price a buy?

It has recovered strongly. There’s going to be less profit generation from Macquarie during this period. At the current Macquarie share price I’d much prefer it to Commonwealth Bank of Australia (ASX: CBA) and the other big four ASX banks due to Macquarie’s earnings diversification with its balanced segments, defensive asset management earnings and geographical spread of earnings.

More reading

• Is it time to buy ASX banks?
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• ASX 200 up 1.35%: Gold miners and Fortescue rocket higher, big four banks tumble
• Why Macquarie, Telstra, United Malt, & Westpac are dropping lower
• ASX 200 Weekly Wrap: Gold miners help edge ASX ever higher

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking to invest in dividend shares, then I think the three listed below would be great options.

This is because, during these uncertain times, these companies look well-placed to continue paying their dividends as normal.

Here’s why I would buy them for income:

Rural Funds Group (ASX: RFF)

Thanks to the quality of its portfolio and long term tenancy agreements, this agriculture-focused property group remains well-positioned to continue growing its distribution during the pandemic and beyond. Rural Funds recently reaffirmed its distribution guidance of 10.85 cents per share in FY 2020 and then 11.28 cents per share in FY 2021. This equates to yields of 5.85% and 6.1%, respectively.

Telstra Corporation Ltd (ASX: TLS)

Another option to consider is Telstra. I think the telco giant is a great income option due to its generous yield and defensive qualities. The latter has been on show in FY 2020, with Telstra one of only a handful of companies that has been able to reaffirm its guidance. I believe this guidance positions the company well to maintain its 16 cents per share dividend this year. This equates to a fully franked 5.15% dividend yield. And with its headwinds easing and T22 strategy bearing fruit, I suspect a return to growth could be just a couple of years away.

Wesfarmers Ltd (ASX: WES)

A final dividend share to buy could be conglomerate Wesfarmers. It is the company behind the likes of Bunnings, Kmart, Catch, and a wide range of industrial and chemical businesses. It also has a sizeable cash balance which looks likely to fund acquisitions in the near future. Combined, I believe Wesfarmers has a solid and diverse business which is likely to deliver growth in earnings and dividends whatever economic cycle we are in. At present I estimate that its shares offer a FY 2021 dividend yield of approximately 4%.

More reading

• 2 ASX shares I plan to hold til I’m 100
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• 2 ASX 50 shares for retirees to buy right now
• Forget term deposits and buy these top ASX dividend shares
• 2 ASX shares I would buy for growth and income

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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On Tuesday the S&P/ASX 200 Index (ASX: XJO) continued its strong form and charged higher again. The benchmark index climbed 1.8% to 5,559.5 points.

Will the market be able to build on this on Wednesday? Here are five things to watch:

ASX 200 expected to drop lower.

The ASX 200 looks set to end its winning streak on Wednesday. According to the latest SPI futures, the benchmark index is expected to open the day 1.5% or 82 points lower. This follows a disappointing night of trade on Wall Street, which saw the Dow Jones fall 1.6%, the S&P 500 drop 1.05%, and the Nasdaq index slide 0.55% lower.

Sydney Airport update

The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price will be on watch this morning when it provides the market with its latest update. Sydney Airport’s update will reveal the full extent of the impact of the pandemic on its operations. The market will no doubt be also looking for commentary regarding how quickly it expects travel markets to rebound.

Oil prices mixed.

Energy producers such as Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL) will be on watch today after a mixed night for oil prices. According to Bloomberg, the WTI crude oil price is up 1.7% to US$32.36 a barrel and the Brent crude oil price has fallen 0.7% to US$34.55 a barrel. Brent crude oil pushed higher on demand hopes.

Gold price rebounds.

Gold miners such as Northern Star Resources Ltd (ASX: NST) and St Barbara Ltd (ASX: SBM) could be on the rise today after the gold price rebounded. According to CNBC, the spot gold price stormed 0.9% higher to US$1,749.50 an ounce. Traders were buying the precious metal amid concerns that recessions are coming in many major economies.

Computershare business update.

The Computershare Limited (ASX: CPU) share price could be on the move today after the release of a business update yesterday evening. According to the release, the majority of the share registry company’s underlying businesses are operating resiliently during the pandemic. It has reaffirmed its management earnings per share guidance of a 20% decline.

More reading

• Top brokers pick the latest ASX stocks to buy today
• Here’s why the Fortescue share price hit an all-time high today
• Is the ASX 200 getting too far ahead of itself?
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Are CBA shares in the buy zone?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Market bulls have gained the upper hand with the S&P/ASX 200 Index (Index:^AXJO) jumping 1.8% today.

The world appears to finally be in control of the COVID-19 pandemic and investors are willing to look past the recession and into the recovery.

But investors shouldn’t get ahead of themselves. The fact that the big four banks have finished the session at their intraday lows shows the rebound remains vulnerable.

If you are looking for ASX shares that might hold their ground better, here are the latest buy ideas from leading brokers.

Bountiful harvest

One stock that UBS is backing is Graincorp Ltd (ASX: GNC). The broker just reiterated its “buy” call on the grain handler as it believes the risk-reward is favourable after management posted a better than expected profit result.

There are also signs that the drought is breaking in parts along the eastern seaboard where Graincrop focuses on. This bodes well for our winter crop.

Further, the group’s balance sheet looks healthy with net cash of $5 million from its core businesses post demerger of UMG and divestment of the Bulk Liquid Terminals.

UBS’ 12-month price target on Graincorp is $4.50 a share.

Turning a corner

Meanwhile, Morgans reaffirmed its “add” recommendation on Superloop Ltd (ASX: SLC) after the broadband services company’s latest trading update.

The broker thinks Superloop is at a turning point after struggling with operational issues over the past year or so.

“Both 1H20 and 2H20 results, ex the COVID-19 overlay which is clearly not management’s fault, have been in-line with our expectations,” said Morgans.

“This implies that after several years of being in an earnings downgrade cycle, FY20 looks to be the base year, from which to grow.”

The broker’s price target on the stock is $1.30 a share.

Good prognosis

Another stock for the watchlist is medical diagnostic group Sonic Healthcare Limited (ASX: SHL). Citigroup highlighted the stock as a “buy” after running several COVID-19 test scenarios.

The stock fell out of favour at the start of the pandemic because investors were worried that what it will make from running COVID-19 tests will not be enough to offset the drop in demand for its traditional services.

The broker estimates that the total market opportunity in the US alone from coronavirus testing stands at around US$6 billion for the six months to the end of calendar 2020.

“Assuming a SHL market share of 5%, it would increase group 1H21 revenue/EBITDA/NPAT by up to 13%/31%/63% over our baseline forecasts of ‘business as usual’, all else equal,” said the broker.

While there are some caveats to the forecast, the broker believes Covid-19 testing could provide a significant cushion against a drop in the base business.

“Under the 5% mkt share scenario the group’s global revenue would have to decline by 13% in 1H21 to offset the contribution from US Covid-19 testing,” explained Citigroup.

The broker’s 12-month price target on Sonic is $32.50 a share.

More reading

• Here’s why the Fortescue share price hit an all-time high today
• Is the ASX 200 getting too far ahead of itself?
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Are CBA shares in the buy zone?
• 3 ASX 200 blue chip shares I would buy today

Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of SUPERLOOP FPO. The Motley Fool Australia has recommended Sonic Healthcare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Is it time to buy banks like Australia and New Zealand Banking Group (ASX: ANZ)?

When you look at the carnage from the coronavirus for ASX bank shares you can see much lower share prices.

ANZ has seen a share price fall of 43%.

The Commonwealth Bank of Australia (ASX: CBA) share price has dropped 33% since 21 February 2020.

Westpac Banking Corp (ASX: WBC) has seen its share price fall 41%.

The National Australia Bank Ltd (ASX: NAB) share price has dropped 43%.

Banks are obviously going to suffer a lot of pain during the coronavirus crisis, that’s why they have already provisioned a few billion dollars between them for bad debts.

But some assumptions investors are making about the banks may not turn out to be as bad if the economy doesn’t slump as much as expected. Perhaps a vaccine will be available for the public sooner than expected, which could open up travel and education sectors sooner than thought. In that scenario banks may actually end up cheap at today’s prices.

A selloff of around 40% is a huge selloff. That’s not far off the GFC and don’t forget that interest rates are now incredibly low. Whilst that obviously reduces the profit of banks, it also improves the attractiveness of the cashflows that they generate each year.

Which ASX bank to buy?

If I had to buy one ASX bank other that Macquarie Group Ltd (ASX: MQG), my pick would be Commonwealth Bank because of its higher quality and good balance sheet.

However, I would prefer to buy Macquarie over other ASX banks. It has global earnings which are more diversified, so I think there’s a lot more to like about Macquarie than the domestic banks. I believe Macquarie has much more growth potential at this stage. 

But I’m avoiding banks right now, even if they do seem cheaper now.

More reading

• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Are CBA shares in the buy zone?
• The ASX big bank stock most likely to outperform in the COVID-19 recovery
• Leading brokers name 3 ASX shares to sell today
• 5 ASX 200 dividend shares for an economic recovery

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There are few ASX shares that I plan to hold til I’m 100.

The problem is that many businesses seem as though they’ll eventually become structurally challenged or at least we can’t have enough conviction in their long-term prospects.

There are two ASX shares in my portfolio I plan to hold until I’m 100, essentially forever.

Here are my two ideas:

Long-term ASX share 1: Rural Funds Group (ASX: RFF)

Rural Funds is a farmland real estate investment trust (REIT). It owns a diverse portfolio of different farm types including almonds, cattle, macadamias, vineyards and cotton.

One of the main reasons why I’m confident about holding this share for the long-term is that farmland has already been around for many centuries which should mean it’ll be okay for the next few decades. The way most of us eats food isn’t going to change any time soon. I believe that farmland is going to be integral for many years to come. 

It aims to increase its distribution by 4% each year to unitholders, so that’s not exactly rocket-like growth, but it’s comfortably higher than inflation and you get a solid starting yield.

I like the Rural Funds strategy of buying properties that it can re-invest into and add productivity improvements at the farms. It’s doing this well with cattle farms at the moment.

As long as the balance sheet remains relatively conservatively geared I think Rural Funds can be an excellent ultra-long-term ASX share which keeps producing a stream of cash distributions for investors. It currently has a forward distribution yield of just over 6% which is solid in today’s low interest coronavirus world.

Share 2: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is an investment conglomerate ASX share that has been listed since 1903. Think of all the things that it has already been through to get to this point. It’s survived through the Spanish Flu, two world wars and all the various recessions.

The conglomerate has a diversified asset base with investments in various industry like telecommunications, resources, property, building products and pharmacies.

Soul Patts regularly invests into new industries. It recently invested a sizeable amount into agriculture and it’s now looking to invest into regional data centres.

It’s already been around for a century and Soul Patts has paid a dividend every single year in that history. Its dividend is funded from the investment income it receives, where it retains some profit which it will use for future investment opportunities.

The current grossed-up dividend yield of 4.7%.

Foolish takeaway

Out the two ASX shares, Soul Patts would be my clear favourite. It’s much more diversified, has a cheaper cost structure, a much longer history and more investment flexibility. I’m looking to buy more shares of Soul Patts if it drops below an $18 share price.

More reading

• 3 Warren Buffett ASX dividend shares to buy right now
• 3 ASX shares to instantly diversify your portfolio
• 3 industries that may never recover from COVID-19
• Beat falling rates with these strong ASX dividend shares
• Buy these ASX 200 shares for your kids today

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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One of the most common questions I hear from ASX dividend share investors is around how to build a portfolio that can provide tax-advantaged income.

The way our dividend system is structured in Australia is actually fairly unique in the world – and gives investors the opportunity to harvest income in an advantaged way.

But many investors don’t realise this and make decisions with their investing which negate these benefits and can even end up eroding their overall returns.

So let’s look at how ASX shares are taxed, and how you can use this to your advantage. Remember though – this is just general information. You should always speak to a tax professional about your individual circumstance as well.

How are ASX shares taxed?

When you own ASX shares you will face two types of tax: capital gains tax and income tax.

Capital gains tax is only levied when you buy an ASX share and sell it at a later date for a profit. In most circumstances, you get a discount on this gain if you have held the shares longer than a year. And if you never sell a share, you never have to pay tax on its gains – something to keep in mind.

For shares that don’t pay dividends, that’s the end of the story. But if you hold shares that do (which is likely for many ASX investors), you will also pay income tax.

See, dividends are taxed as ordinary income. This means you’ll have to add the dividends you receive each year to your total income, which is then taxed at your marginal rate.

But there’s another aspect to dividend taxes that some investors overlook: franking credits.

How franking can help you pay less tax

If a company pays a dividend in Australia, it usually does so from a pool of cash that has already been taxed by the government. Therefore, if the government taxes the dividend again when you receive it as income, it will have been taxed twice. To remove this double-tax, the dividend will come with a ‘receipt’ of the tax that’s already been paid. That receipt is known as a franking credit. Depending on how the company has paid its tax, and in which country it earns its income, dividends may be distributed fully franked, partially franked or with no franking credit at all. 

Franking credits can be used to offset other income as a deduction, effectively reducing the tax you have to pay on said income. In this way, receiving dividends is a very tax-effective way to make money. This is particularly relevant in retirement when you no longer have work-related deductions to offset your income tax.

Foolish Takeaway

Of course, some investors don’t really worry about dividends and prefer to stick with growth shares to try and maximise capital gains. But for those investors who invest for income, or even those who are happy with any kind of return, dividends can be a great way to receive income that comes with tax advantages like franking. So make sure if you invest for dividends, you know the full extent of the benefits that come with them!

More reading

• Top brokers pick the latest ASX stocks to buy today
• Is it time to buy ASX banks?
• 2 ASX shares I plan to hold til I’m 100
• ASX 200 market close: Share market up 1.8%
• Here’s why the Fortescue share price hit an all-time high today

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index has ended up 1.8% today at the market close.

There are plenty of ASX shares that have soared in reaction to the news that a vaccine is showing very early promising signs. Investors love good news so share markets soared overnight and today the ASX has followed.

Some of today’s biggest ASX 200 movers

The Unibail-Rodamco-Westfield (ASX: URW) share price went up 11.4% today.

Worley Ltd (ASX: WOR) saw its share price jump by 9.6%.

The Nearmap Ltd (ASX: NEA) share price rose by 9%.

The oOh!Media Ltd (ASX: OML) share price grew by 8.6%.

COVID-19 conditions have caused cyclical and retail shares like shopping centres and businesses relating to advertising to be sold off. Today seems to have been a signal for some investors to jump into shares that have been most heavily affected. And something like Worley might benefit from the higher oil prices. 

James Hardie Industries plc (ASX: JHX) share price jumps

The James Hardie Industries plc (ASX: JHX) share price increased by 11.2% after announcing its result.

The compared reported group adjusted net operating profit of US$352.8 million for the full year, an increase of 17% compared to the prior corresponding period. Net sales of US$2.6 billion for the full year, this was an increase of 4% compared to last year.

Reported net profit increased by 6% to US$241.5 million. The ASX 200 share’s result was solid given the environment.

Tabcorp Holdings Limited (ASX: TAH) update

The ASX 200 gambling’s share price rose 2.5% today after giving an update.

Tabcorp said that it has secured agreements for a waiver of leverage and interest cover for the next two testing dates, but it won’t pay a final FY20 dividend.

It’s also in advanced discussions with its US private placement holders to obtain changes to existing covenants.

At 15 May 2020 it had $820 million of available liquidity of undrawn facilities and unrestricted cash. This compares to $749 million at 3 April 2020.

More reading

• ASX 200 storms 2% higher: Big four banks jump on COVID-19 vaccine news
• Why James Hardie, Oil Search, Webjet, & Westpac shares are jumping higher
• This is the latest ASX 200 stock to unveil double digit profit growth
• ASX gambling shares on watch as sporting codes make plans to resume
• These mid cap ASX shares could grow into large caps in the future

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia has recommended oOh!Media Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Fortescue Metals Group Limited (ASX: FMG) share price hit another new all-time high today. Fortescue’s shares had been trending higher for most of the year, despite a brief (but sharp) dip in March, along with the rest of the broader S&P/ASX 200 Index (ASX: XJO). But since falling to a low of $8.58 on 9 March, the Fortescue share price has rallied over 62% to today’s new high of $13.95 before edging slightly lower to $13.93 at the close.

Real winners have been hard to find on the ASX 200 in recent months (especially in the dividend space), so is it too late to invest in Fortescue?

Why Fortescue shares are hitting the roof

Fortescue is an iron ore miner and one of the biggest in Australia at that. The company has a market capitalisation of over $40 billion (based on today’s closing share price). Unlike most other mining giants such as BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), Fortescue is a pure-play on iron ore, with the red dirt comprising almost all of the company’s earnings.

And it’s this red dirt that is sending the Fortescue share price higher today. Iron ore prices have been holding up remarkably well since the coronavirus pandemic set in. They haven’t dipped below US$80 per tonne in 2020 so far. But this week, iron ore prices have pushed over US$90 per tonne amid global supply concerns.

According to the Australian Financial Review (AFR), the Brazilian mining sector is currently being severely affected by COVID-19, and supply cuts are very likely in 2020. Brazil is one of the largest exporters of iron ore, so this supply squeeze is causing global iron ore prices to rise, and the Fortescue share price to follow suit.

Is the Fortescue share price a buy at these levels?

On one level, there is a lot to like about the Fortescue share price today. Fortescue is an extremely low-cost producer of iron ore and has an average cost of extraction of around US$13 per tonne. With iron ore prices currently sitting around US$92 per tonne, Fortescue has basically got itself a license to print money. This money will no doubt fund massive dividend payments for Fortescue’s shareholders if the iron ore price stays anywhere close to its current level – which in itself is a scarce commodity these days.

But by investing in Fortescue (as with all ASX resources shares) you are always taking on pricing risk. Fortescue has no control over the pricing of the commodity it mines, which leaves it at the mercy of the market. Iron ore is a notoriously volatile commodity as well, having touched both US$187 a tonne and US$40 a tonne in the last decade.

Foolish Takeaway

I think Fortescue is a great company, and one well worth adding to a diversified ASX portfolio. Its costs are so low that I don’t think it will ever be in serious risk of bankruptcy, even in a sustained iron ore bear market. Saying that, anything can happen with commodity prices (just take a look at oil recently). As such, I would probably wait until this company isn’t trading at all-time highs before adding it to my buy list.

More reading

• Is the ASX 200 getting too far ahead of itself?
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Could ASX 200 iron ore shares save the Australian economy?
• Are CBA shares in the buy zone?
• 3 ASX shares that will have strong dividends in 2020

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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