Why the Fortescue (ASX:FMG) share price could be dirt cheap

Is it time to buy Fortescue shares?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Fortescue Metals Group Limited (ASX: FMG) share price has been a very disappointing performer in recent months.

So much so, the iron ore producer's shares are now trading 45% lower than their July highs.

Two cheerful miners shake hands while wearing hi-vis and hard hats celebrating the commencement of a HAstings Technology Metals mine and the impact on its share price

Image source: Getty Images

Is the Fortescue share price in the buy zone now?

The good news for shareholders is that one leading broker sees a lot of value in the Fortescue share price at the current level.

According to a recent note out of Bell Potter, its analysts have a buy rating and $20.87 price target on the mining giant's shares.

Based on the current Fortescue share price of $14.56, this implies potential upside of 43% for investors before dividends.

In addition, its analysts are forecasting a $3.33 per share fully franked dividend in FY 2022. This represents a massive 23% yield at current prices, which brings the total potential return to 66%.

What did the broker say?

The note reveals that Bell Potter has been running a range of iron ore price scenarios and concludes that the sharp pullback by the Fortescue share price looks overdone.

It commented: "Undoubtedly a brutal move that has done serious technical damage to FMG's share price and sentiment, it should be taken in the context of a business that is making industry leading margins, has an excellent operational track record, costs among the lowest in the industry, is funded for its ongoing capital requirements for replacement and growth and has an exceptionally strong balance sheet."

"FMG is in a completely different position than in 2015, the last occasion on which we had a major iron ore price correction. While the share price currently looks like a falling knife, we are of the view that it remains a robust and attractive long-term investment and the current market valuation is an opportunity to build exposure," it added.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Red buy button on an Apple keyboard with a finger on it.
Broker Notes

3 reasons to buy Origin Energy shares today

A leading analyst expects more outperformance from Origin Energy shares. But why?

Read more »

Business people discussing project on digital tablet.
Broker Notes

Buy, hold, sell: AGL, Origin Energy, and Woodside shares

Here's what analysts at Shaw and Partners think of these shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A man in his 30s with a clipped beard sits at his laptop on a desk with one finger to the side of his face and his chin resting on his thumb as he looks concerned while staring at his computer screen.
Broker Notes

Buy, hold, sell: Life360, Northern Star, and Sigma shares

Are these popular shares buys? Here's how analysts rate them.

Read more »

Business man marking buy on board and underlining it.
Broker Notes

6 ASX All Ords shares elevated to strong buy status after March sell-off

The ASX All Ords fell 8% in March after the US and Israel attacked Iran and oil and gas prices…

Read more »

Red buy button on an Apple keyboard with a finger on it.
Broker Notes

Brokers name 3 ASX shares to buy right now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman using a pen on a digital stock market chart in an office.
Broker Notes

Could these ASX stocks double by the end of 2026?

These 5 stocks could be undervalued.

Read more »

An investor wearing a dressing gown and holding a cup of coffee in a yellow mug gives a satisfied smile.
Broker Notes

7 ASX 200 shares just upgraded to strong buy ratings

Looking for inspiration after the March sell-off?

Read more »