It's a buy! Expert says Fortescue shares are oversold

An expert has called Fortescue shares an opportunity.

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Fortescue Ltd (ASX: FMG) shares have seen a fair amount of volatility in 2024 to date, down by nearly 26%, as shown on the chart below. However, with the much-reduced valuation, an expert spies an opportunity.

The short-term success of a commodity business is often linked to the price of the commodity. If the iron ore price falls, then it can significantly cut into that year's profitability.

At the start of 2024, the iron ore price was above US$140 per tonne, but it has since dropped to around US$110 per tonne, according to Trading Economics.

Optimistic view on Fortescue shares

Writing on The Bull, Michael Gable from Fairmont Equities has called the ASX mining share a buy. He pointed out that the Fortescue share price has fallen from $27.30 on 22 May 2024 to around $21.80 now, a decline of around 20%.

Gable and his team suggest that this is an "attractive entry level". The expert noted that the weaker iron ore price has led to the Fortescue share price fall. But, in past years, Fortescue "has often been oversold on weaker iron ore prices only to bounce back".

The Fairmont Equities expert suggests that the Fortescue share price could "move higher from these oversold levels."

What's happening to the iron ore price?

According to Trading Economics, iron ore recently pulled back from a one-month high as data points to "rising iron ore inventories" at Chinese ports, which is signalling "weaker demand from steel mills for metal production."

Markets are now focusing on the upcoming Third Plenum, which will be held later in July. Leading Chinese officials are expected to tackle plans to "comprehensively deepen reform and advance Chinese modernisation."

Some analysts are now seeking further policy support for the Chinese property sector.

Trading Economics also noted that weak US economic data increased bets that the US Federal Reserve could start cutting interest rates as early as September. If US rates are reduced, then this could boost global economic growth and overall demand, supporting commodity prices.

It's possible that the growing economies of other Asian countries could lead to increased demand for Australian iron ore beyond China. Indian steel demand is expected to keep rising, according to one of the largest steel mills in the world's most populous country.

Fortescue share price snapshot

Despite all of the volatility, the Fortescue share price is actually up nearly 3% in the last 12 months.

Motley Fool contributor Tristan Harrison has positions in Fortescue. 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 Scott Phillips.

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