Fortescue Metals Group Limited (ASX: FMG) was one of the market's strongest performers on Friday, rising 5.1% to an early-afternoon high of $2.88. That compares to a 0.1% rise from the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Despite the rally, the stock is still well below its 52-week high, recorded at $6.22 in February 2014. The iron ore price fell 47% over the course of the year and is now changing hands for just US$71.26 a tonne after rising 0.15% earlier this week.
It's possible that the stock has risen so strongly today thanks to optimistic forecasts regarding the iron ore price. As an example, The Sydney Morning Herald recently quoted Tom Price, an analyst at Morgan Stanley in London, as saying "In terms of price downside, the worst is probably over".
That could also be why some of the nation's smaller miners, such as BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX) have risen so strongly. The pair were up 17.9% and 12.2% respectively, while Atlas Iron Limited (ASX: AGO) has seen its share price surge 33.3%.
Of course, Price could be wrong on his forecast. Others are saying the price could drop below US$60 a tonne as a result of slowing Chinese demand and massive increases in supply from miners such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
At this stage however, there is no way of knowing for sure which direction iron ore will go, meaning that Fortescue, along with every other iron ore stock, remains a risky bet today. While Fortescue could deliver massive gains if the iron ore price does indeed rebound, it could just as likely retreat further if iron ore prices resume their tumble. For now, investors would be advised to remain cautious and could put their money to work in other promising businesses instead.
