This could seriously torpedo the Fortescue Metals Group Limited share price

There’s no doubt that the only place to be in the Australian share market over the past year has been the commodity sector, with the share prices of the likes of BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and South32 Ltd (ASX: S32) all catching fire on the back of rising coal and iron ore prices.

Still some say what goes up must come down and the Fairfax press is reporting that analysts at British-founded bank HSBC are predicting that iron ore prices could bomb in the year ahead.

The HSBC analysts pointing out that rising prices are likely to lead to increased and eventual over-supply of iron ore, which could mean sharp falls in prices while the market balances out. This is not rocket science and you don’t need a long memory to remember this time last year when cyclical commodity prices and the miners’ shares were at rock bottom as global investors panicked over slowing Chinese demand. The other often cited factor was oversupplied markets that could quite quickly eventuate to send the shares of iron ore miners into a tailspin again.

Notably, the Fortescue Metals Group Limited (ASX: FMG) share price has more than doubled in just one year and looks ripe for some profit taking on the first sign of a reversal in iron ore prices.

On the other hand it’s possible to make the case that Fortescue shares are cheap if you expect iron ore prices to hold up thanks to the still strong growth of China that continues on its economic model of centralised investment.

Fortescue is expected to earn around 91 cents per share this financial year, which places it on an estimated earnings multiple of just 7x with a bumper dividend yield.

Evidently investors can expect the Fortescue share price to remain volatile with big gains or losses likely to be posted in 2017.

If you don’t fancy short-term volatility why not look to the kind of long-term wealth builders that could lead you to a blue-chip retirement.

Such as the below…

Such as these 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often full franked..

But knowing which blue chips to buy, and when, can often be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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