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Should you buy Fortescue shares in 2020?

Fortescue Metals Group Limited (ASX: FMG) shares have been rocketing higher in 2019.

The company’s shares are up 134.46% so far this year on the back of strong commodity prices and earnings.

But is there still time to buy or should you look elsewhere for value on the ASX in 2020?

Why Fortescue shares are surging higher in 2019

Despite the strong capital gains this year, it hasn’t been all smooth sailing for Fortescue shareholders.

The company’s shares have been under pressure in periods of 2019 largely due to fluctuating gold prices and the US–China trade war.

Despite these challenges, Fortescue shares have more than doubled on the back of earnings outperformance in FY 2019.

Fortescue’s revenues rocketed 45% to US$9.96 billion while underlying EBITDA surged 90% to US$6 billion.

The real kicker? Fortescue’s net profit after tax (NPAT) rocketed an astonishing 263% to US$3.19 billion.

Should you buy in 2020?

There’s no doubt Fortescue has been a top performer on the ASX 200 in 2019. But past performance doesn’t indicate future success and here’s where I would be wary.

Fortescue shares are currently trading at a price-to-earnings (P/E) multiple of 6.41x earnings, which makes it one of the better value ASX mining stocks on the market.

For comparison, BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) shares trade at 15.3x and 8.1x, respectively.

Despite Fortescue’s strong capital gains in 2019, I think the exposure to commodity prices makes the stock a risky one in 2020.

However, if you’re looking for commodities exposure in your portfolio then Fortescue shares could be a great option.

What are some ASX alternatives?

I personally like some of the countercyclical stocks on the market right now which could be better value than Fortescue shares.

I’d be keeping an eye on CSL Limited (ASX: CSL) and Origin Energy Ltd (ASX: ORG) ahead of the February results season.

These stocks could provide strong dividends and robust earnings in the face of a changing business cycle in 2020.

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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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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