Should You Buy Fortescue Metals Shares Right Now?

Should You Buy Fortescue Metals Shares Right Now?

Fortescue Metals High Vis
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What happened to the Fortescue Metals share price?

Hindsight’s a wonderful thing. If investors had to pick one stock at the start of the year that would outperform all others in the ASX 100, I doubt many would have picked Fortescue Metals Group [ASX:FMG].

Often touted as the ‘most shorted’ stock on the market, Fortescue hit a recent high of $6.20 — a far cry from the $1.50 it was trading for at the start of the year. In other words, a $5,000 investment in Fortescue in January would be worth over $21,000 today.

Why did Fortescue do this?

There were several reasons the ‘short’ Fortescue trade became so crowded. First, the bubble in iron ore prices burst, sending the share price of producers asunder. And unlike BHP [ASX:BHP] and Rio Tinto [ASX:RIO], Fortescue is a pure iron ore play. It lacks the diversity of its conglomerate rivals.

Another big issue was the size of Fortescue’s debt. However, rigorous attention to cost management enabled Fortescue to lower their cost base to match their long established competitors. Doing so enabled Fortescue to pay of chunks of its debt earlier than scheduled, taking some pressure of its balance sheet.

What now for Fortescue?

Despite the massive jump in Fortescue’s share price, it’s still only trading at around half the price of the peak of the market in 2008. After taking a huge amount out of production costs, further cuts will be harder to come by.

Because of this, it will be the spot price of iron ore that will have the biggest impact on the share price from here. After such a big run up this year, any turnaround in the iron ore price could see traders quickly take their profits in Fortescue off the table.

Matt Hibbard,
Money Morning

Matt Hibbard

Matt Hibbard

Editor at Total Income

Matt Hibbard is Money Morning’s income specialist. While most investors focus on making money in the short term, Matt takes a different view. He’s focussed on how you can invest today to grow wealthy in 10 or 15 years’ time. In Money Morning, Matt shares his insights on how you can make the financial markets PAY YOU an income that could greatly increase your wealth in later life…and let you focus on more important things than money.
Matt Hibbard is Money Morning’s income specialist.While most investors focus on making money in the short term, Matt takes a different view.

He’s focussed on how you can invest today to grow wealthy in 10 or 15 years’ time.

Matt researches income investments. You can find more of Matt’s work over at Total Income where he’s hunting down the next generation of companies that could pay you more each year than you initially invest.

Having worked both for himself and with global firms for almost three decades, Matt’s traded nearly every asset in existence.

But now he’s on a very different mission — generating income from the market over the long term. Not just years, but decades.

And getting companies to pay you a steady, stable income with minimal stress and the least risk possible.

Matt doesn’t believe you have the luxury of being a bull or a bear in the market right now.

Because you have to earn an income from it, regardless of whether stocks are going up or down.

In Money Morning, Matt shares his insights on how you can make the financial markets PAY YOU an income that could greatly increase your wealth in later life…and let you focus on more important things than money.

If you’re interested in more than just hot stocks or global finance talk that doesn’t actually help you with your own investing, check out Matt’s articles below.

You can also have his regular investment insights delivered direct to your inbox. Just take out a free subscription to Money Morning here.

And if you’d like to learn about the specific investments Matt is recommending, take a 30-day trial of his income investing service Total Income here.

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