Fortescue shares are up in trading today but, according to Goldman Sachs, this is not likely to be a long-term trend.
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The S&P/ASX 200 Index (ASX: XJO) is having a very nice start to the trading week. At the time of writing, the ASX 200 is up a healthy 0.74% to 7,327 points. But one ASX 200 share that’s doing even better than the ASX 200 today is Fortescue Metals Group Limited (ASX: FMG). The Fortescue share price is currently up a substantial 2.47% to $24.46 in early afternoon trade.
After a rip-roaring year in 2020 which made Fortescue shares one of the best ASX blue chips to own, 2021 has certainly been more subdued for this iron ore miner. With today’s hefty gains, the Fortescue share price is up just 4.4% year to date. Though it’s seen a very nice 64.71% increase over the past 12 months.
But what’s behind the positive move in Fortescue shares today?
Fortescue having a good day
As an iron ore miner, we can point to robust commodity prices this week as a primary catalyst for the Fortescue share price outperformance today. Commodity prices continue to defy gravity, it seems.
This morning gold is back above US$1,800 an ounce, crude oil (Brent) is above US$75 a barrel, and copper is still trading at record highs, above US$9,430 a tonne. And, perhaps most importantly for Fortescue, iron ore remains at historically high levels at more than US$215 a tonne today.
Another factor that is probably benefitting the Fortescue share price is the Aussie dollar. The Aussie has been slipping in recent weeks, and is currently under 75 US cents at 74.82 at the time of writing. A month ago, it was at 77.5 US cents. A lower Aussie dollar benefits any exporting company, as it makes its exports cheaper for foreign buyers in US dollar terms. As a major iron ore miner, this benefits the Fortescue share price in particular.
So at these elevated levels, are Fortescue shares worth considering?
Are Fortescue shares a buy today?
One broker who thinks Fortescue might have run its race, at least for now, is investment bank Goldman Sachs. Goldman currently rates Fortescue shares as a ‘sell’. It has a 12-month share price target of $18.20 for the miner. That implies a potential downside of more than 25% on current pricing. Goldman reckons the Fortescue share price is currently at risk from a fall in iron ore pricing. The broker noted that, based on an iron ore price of US$80-90 per tonne, Fortescue would be at a 9x earnings multiple based on FY2023 earnings expectations. That compares with a ~5x ratio for both BHP and Rio.
Should you invest $1,000 in Fortescue Metals right now?
Before you consider Fortescue Metals, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Fortescue Metals wasn’t one of them.
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*Returns as of May 24th 2021
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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 Bruce Jackson.