It's been an incredible week thus far for shareholders of Fortescue Metals Group Limited (ASX: FMG), who have watched their shares appreciate a further 10.4% today. Now trading at $3.82, the stock has managed to jump a remarkable 17.2% since its closing price on Friday with iron ore prices bouncing from their recent lows.
Indeed, the stock is still sitting well below its 52-week high, which was recorded at $6.22 in February this year. It will need to recover another 38% to be trading at those levels again.
So What: The market has punished Fortescue's shares in recent months as the iron ore price has plunged to fresh multi-year lows. Although it is one of Australia's largest producers of the resource, its operating costs are far greater than those of BHP Billiton Limited (ASX: BHP) or Rio Tinto Limited (ASX: RIO), with many investors voicing their concerns over its margins and ability to pay down debt should prices fall any lower.
However, the commodity bounced 4.9% overnight in its greatest one-day jump in over two years. Chinese data revealed far greater exports and imports than had been expected which eased global concerns regarding an economic slowdown hitting Asia's most powerful nation.
With iron ore now trading at US$84.17 a tonne, it seems investors are piling into the most-heavily exposed stocks in the hope of catching the recovery. Atlas Iron Limited (ASX: AGO), BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX) have also each risen more than 11% today. BHP Billiton and Rio Tinto have gained 2.8% and 3.8% respectively.
Now What: Fortescue certainly looks tempting at today's price – particularly with its juicy, fully franked yield of 5.1% and P/E ratio of just 4.1. While the stock could be a huge winner if the iron ore price does continue to climb, its high level of debt is still an area of huge concern. As such, I would still suggest Fortescue is a stock to avoid for now – at the very least until the high level of volatility in the sector begins to subside.
Besides, there are far better opportunities for investors to take advantage of thanks to the market's recent pullback…