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Will this promotion boost the Fortescue Metals Group Limited share price?

A rampaging Fortescue Metals Group Limited (ASX: FMG) share price has helped the iron ore miner to push into the S&P/ASX 50 (Index: ^AXFL) (ASX: XFL) at the expense of beverage manufacturer Coca-Cola Amatil Ltd (ASX: CCL).

The S&P Dow Jones Indices announced its March 2017 Quarterly Rebalance this morning with the entire S&P/ASX index hierarchy having been reviewed. While there were no changes to the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) itself, there were a few changes at the top end of the board.

Over the past year, the Fortescue share price has soared more than 150% thanks to debt repayments, cost cutting initiatives and a skyrocketing iron ore price. Boasting a market valuation of almost $20 billion, Fortescue has pushed back into the ASX 50 cohort, along with Aristocrat Leisure Limited (ASX ALL).

Although the Coca-Cola Amatil share price has recovered around 15% in the past 12 months, the beverage business has been forced out of the ASX 50. Online classifieds business SEEK Limited (ASX: SEK) was forced out of the group of 50 as well.

Meanwhile, Evolution Mining Ltd (ASX: EVN) and Macquarie Atlas Roads Limited (ASX: MQA) will join the ASX 100, with Blackmores Limited (ASX: BKL) and Sirtex Medical Limited (ASX: SRX) being removed from that group.

Looking again at Fortescue, the move inside the ASX 50 could help its share price a little in the short run as fund managers mandated to the top end of the market build an appropriate share in the business. The Fortescue share price could also benefit if iron ore rebounds from here, or if it makes further announcements regarding additional debt repayments being made.

Indeed, there is no denying the company’s performance – and that of its share price – has been impressive. Fortescue has thus far proved many of its critics wrong and shareholders who hung on for the ride have been well rewarded.

However, investing in the commodities sector isn’t without risk. Even in the past week or two, cracks have begun to appear in the iron ore price with some suggestions it could fall hard during the second half of the year. Although Fortescue has now pushed into the ASX 50 group, investors should think twice before buying its shares today.

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Motley Fool contributor Ryan Newman has no position in any 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 Bruce Jackson.

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