Top broker upgrades Fortescue Metals Group Limited shares: Time to buy?

The Fortescue Metals Group Limited (ASX: FMG) share price has been one of the best performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) this week.

Week-to-date the iron ore giant’s shares have gained a remarkable 12%, compared to a paltry 0.7% gain from the benchmark index.

Why have its shares rallied?

As well as getting a lift from a rebound in iron ore prices, a key catalyst to its strong share price performance this week has been a research note out of RBC Capital.

That note revealed that analysts at the investment bank have upgraded Fortescue Metals to an outperform rating and slapped an $8.50 price target on its shares.

According to the note, RBC Capital has increased its price forecast for iron ore to an average of US$84.50 a tonne this year. Its previous estimate was for an average of US$67.50 a tonne.

Solid demand for steel, due to infrastructure and property sector consumption are the reason behind the iron ore forecast upgrade.

Should you invest?

Even after the strong gains it has made this week, Fortescue Metals’ share price is still approximately 25% lower than RBC Capital’s price target. This certainly makes it a tempting option for investors.

If Chinese demand does support current iron ore prices for the foreseeable future then I think that there is every chance that Fortescue Metals shares could surge significantly higher.

But whether or not prices remain high, is anybody’s guess. Andrew ‘Twiggy’ Forrest told Bloomberg this week that he expects prices to ‘trim down’ and I can’t help but expect the same as new supply hits the market.

While iron ore price could continue to surprise the market and help take Fortescue Metals, Rio Tinto Limited (ASX: RIO), and BHP Billiton Limited (ASX: BHP) shares higher, at this stage I see it as a reasonably high risk investment.

Because of this I’m going to sit this one out and focus on other areas of the market.

For example, these three growth shares could be even better investments than Fortescue Metals in my opinion.

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Motley Fool contributor James Mickleboro 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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