Here's why these 4 shares smashed the market today

Could there be more where that came from for Rio Tinto Limited (ASX:RIO), Fortescue Metals Group Limited (ASX:FMG), Santos Ltd (ASX:STO), and Sims Metal Management Ltd (ASX:SGM)?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 (INDEXASX: ^AXJO)(ASX: XJO) rallied strongly today, rising 2% to 4,974 points on the back of a strong jump in commodity stocks.

These four shares considerably outperformed the market today, and here's why:

Rio Tinto Limited (ASX: RIO) shares rose 9% to $40.37 today after the price of iron ore rose above US$44 a tonne overnight. With prices seemingly no longer in imminent danger of dropping below US$40 per tonne, Rio and its major competitors enjoy comfortable profit margins at prices of around A$60 per tonne.

However, investment bank Goldman Sachs warned this morning of further pressure to come on iron ore, as China is looking to cut its domestic steel production, a major source of demand for Australian iron ore. Goldman estimates the lost output could be equivalent to 90-150 million tonnes of iron ore, or 15% of the seaborne iron ore market, which is the market that Rio and Fortescue supply. Investors should be prepared to see continued volatility in Rio's share price.

Fortescue Metals Group Limited (ASX: FMG) also jumped 9.2% to $1.77 today for similar reasons as Rio Tinto. Rising iron ore prices mean greater profits for Fortescue, whose average cost of production has dropped rapidly in recent months. If a reduction in Chinese steel output eventuates as intended however, it could have a big impact on prices and demand for Fortescue's product.

Fortescue has been one of the 'strongest performing' iron ore companies on the market in recent months.

Sims Metal Management Ltd (ASX: SGM) gained 10% to $7.34, continuing the theme regarding iron ore prices and demand for steel. In Sim's case, a reduction in Chinese steel production could mean more appetite for Sim's recycled steel, or higher prices for global steel overall as supply is reduced. Sims is also partway through an ambitious plan to boost earnings significantly without acquisitions or an improvement in market conditions.

Sims shares have languished for several years under tough trading conditions, and are down 39% in the past 12 months.

Santos Ltd (ASX: STO) – last but not least – soared 13% to $3.13 on the back of recent rises in the value of Brent Crude oil, which gained some 8% yesterday according to Reuters. Additionally, recent market talk that oil producers are discussing capping production in order to set some kind of floor on the commodity's price is boosting support.

While today's rise is a positive development, I wrote in this article in December last year that, as a result of wider market factors, investors should be prepared for further disappointment and volatility from the oil market in 2016.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Resources Shares

A miner holding a hard hat stands in the foreground of an open cut mine
Resources Shares

A close look at BHP shares. What is the mining giant's next move?

Let's take stock of what the experts think.

Read more »

Miner looking at a tablet.
Resources Shares

Short bets on Pilbara Minerals shares are declining. Is now the time to buy?

Could the trade be unwinding?

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Resources Shares

'I hate what I have done': Mineral Resources share price down as Ellison laments actions

Managing Director Chris Ellison says he deeply regrets the impact of his 'error of judgement'.

Read more »

A man in shirt and tie uses his mobile phone under water.
Resources Shares

The Lake Resources share price is sinking yet again. Here's why

The longer-term downtrend continues.

Read more »

Miner and company person analysing results of a mining company.
Resources Shares

With a P/E ratio of 6, is the Fortescue share price a bargain?

Let’s dig into whether Fortescue shares are good value or not, in my eyes.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Resources Shares

Down 15% this year, where's the next stop for Rio Tinto shares?

Where to next for the miner?

Read more »

Miner and company person analysing results of a mining company.
Resources Shares

Can Pilbara Minerals shares cross the $3 mark?

Lithium stocks continue to split opinion.

Read more »

Female miner smiling in front of a mining vehicle as the Pilbara Minerals share price rises
Resources Shares

'Encouraging signs' for Fortescue shares heading into 2025

This leading investment expert forecasts brighter days ahead for Fortescue shares.

Read more »