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

Is it time to buy Fortescue shares?

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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

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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.

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.

Should you invest $1,000 in Fortescue right now?

Before you consider Fortescue, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Fortescue wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

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.

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