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Why the Fortescue Metals share price is riding higher today

The Fortescue Metals Group Limited (ASX: FMG) share price is up 1.8% to $4.52 today despite the Pilbara-based iron ore miner revealing no specific news to the market.

In fact it’s the third most heavily traded stock by nominal cash volume today behind just BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA).

So let’s take a look at what might be driving investor interest in the iron ore miner.

First up is the fact that on first glance its valuation looks de facto cheap and cheap compared to peers such as BHP or Rio Tinto Limited (ASX: RIO). After all Fortescue shares change hands for just 11.9x trailing earnings per share, with a trailing dividend yield of 5.2% to boot.

The company is also in the middle of a share buy-back worth up to A$500 million since October 1 2018, with its own chairman and founder Andrew Forrest also recently buying around A$15million worth of stock on market on October 26 when shares traded for well under $4.

Fortescue has cash on hand around US$972 million, but does still carry net debt of more than US$3 billion with progress in deleveraging recently.

As such the shares could enjoy a strong run in 2019 if the iron ore price holds up. The caveat is that the iron ore price moves in mysterious ways as demand from China is hard to read while the large miners all have potential to ramp supply.

Motley Fool contributor Tom Richardson has no position in any of the 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 Scott Phillips.

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