The S&P/ASX 200 Materials (ASX:XMJ) materials sector is now down 9% over the last year.
Two of the most recognisable blue-chip stocks in this sector have fallen even further.
At the time of writing, Fortescue Ltd (ASX: FMG) has seen its share price fall by 31.33% and BHP Group Ltd (ASX: BHP) has fallen 16.64%.
Broadly speaking, buying into ASX giants while they are down is a wise bet. However, with so much uncertainty facing global commodity markets, it can be difficult to jump on board.
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What's influencing the fall?
It's been one global or political crisis after another for these companies.
A slowdown in demand from main export partner China, tariff uncertainty and dropping commodity prices have all pushed these mining companies' share price lower and lower.
Now conflict in Iran is unsettling global markets.
Fortescue Metals Group primarily mines iron ore, and while BHP has a more diversified mining portfolio, it remains its largest revenue source.
Over the past month, the Iron Ore's price has fallen 4.88%, and is down 11.11% compared to the same time last year.
Weathering the storm
Oil prices will be an important commodity to watch in coming months for these companies.
Brent crude oil has fallen 9.33% over the past 5 days.
Falling oil prices are a net positive for both Fortescue and BHP by lowering energy and transport costs, with Fortescue benefiting more significantly due to its higher cost sensitivity.
On the other hand, rising crude oil prices increase fuel, transport, and shipping costs for both BHP and Fortescue, impacting their margin.
However Fortescue could be more vulnerable due to its narrower focus on iron ore and lack of energy assets.
BHP might be more insulated thanks to its diversified portfolio and indirect exposure to oil via its stake in Woodside Energy Group Ltd (ASX: WDS).
In the meantime, falling iron ore prices negatively impact both companies' earnings. But Fortescue could be more exposed due to its heavy reliance on iron ore and lack of diversification.
BHP could be better positioned to weather the downturn thanks to its broader commodity portfolio.
Have they hit rock bottom?
So what does this all mean?
For investors, the conflict in Iran and volatile commodity markets means there could be further share price falls for these materials shares in the short term.
However, these companies remain two of Australia's largest ASX listed companies by market cap. They are both trading at a comparative discount due to these global factors.
Broker Bell Potter indicates BHP shares are a relative value.
The broker has a price target of $42.97 which indicates an upside of approximately 19.0%.
However, the broker is less bullish on Fortescue shares.
Fortescue shares are currently trading at $14.88 each. Bell Potter has placed a "hold" recommendation and $15.87 target price – indicating 6.65% upside.
Foolish takeaway
These two mining giants are bruised and battered right now.
Those looking to invest for upside in these materials shares should be conscious of short-term volatility. However the long term returns could be worthwhile.
Additionally, both pay healthy dividends that could provide passive income even if the stock price declines further.
