This top broker has named the Fortescue (ASX:FMG) share price as a sell

The Fortescue share price has been slapped with a selling rating.

| More on:
asx share price fall represented by investor with head in hands

Image source: Getty Images

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 Fortescue Metals Group Limited (ASX: FMG) share price has been rated as a sell by a leading broker.

UBS has decided to call the iron ore giant a sell as its expectations regarding the iron ore price have weakened.

What has UBS said about the Fortescue share price?

According to reporting by the Australian Financial Review's Tom Richardson, UBS believes that the iron ore price is going to drop below US$100 in the next few months and end up at a range of between US$70 per tonne to US$80 per tonne.

That expectation is based on a slowdown of property activity in China because actions taken by authorities as well as the possibility of Evergrande defaulting, which may impact confidence.

If you haven't heard of Evergrande, it's a very large Chinese developer that is currently in financial troubles.

Mr Richardson also reported that UBS has lowered its projection for the FY22 dividend from $3.06 per share to $2.12 per share. The FY22 underlying net profit is expected to be US$6.3 billion. Profit expectations can have a big impact on the Fortescue share price.

Australia's new treaty

It may also be impossible for iron ore miners and China to ignore the new strategic treaty that was announced between Australia, the US and the UK.

This arrangement between the three countries is going to be called Aukus. Part of the agreement is that Australia will be getting nuclear submarines, though they won't be armed with nuclear weapons.

The ABC quoted the US President Joe Biden, who said:

This is about investing in our greatest source of strength — our alliances — and updating them to better meet the threats of today and tomorrow.

However, Chinese officials did not think highly of this new deal. Chinese foreign ministry spokesman Zhao Lijian said of the agreement that it:

Seriously undermines regional peace and stability and intensifies the arms race. The export of highly sensitive nuclear submarine technology by the United States and Britain to Australia once again proves that they use nuclear exports as a tool of geopolitical games and adopt double standards, which is extremely irresponsible.

As the major purchaser of Australian iron ore, China can have a major influence on the iron ore price.

What now for the Fortescue share price?

UBS has put a price target on Fortescue. The 11.5% drop of Fortescue shares on Friday ensured that the large iron ore miner has rapidly reached close to that level already.

Time will tell what happens next for the iron ore price and Chinese demand.

However, for Fortescue shareholders who have held for more than a couple of weeks, the final FY21 dividend is expected to be paid on 30 September 2021.

That incoming dividend is a payment of $2.11 per share, which was more than twice the size of the FY20 final dividend of $1 per share.

Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. 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 Bruce Jackson.

More on Share Market News

Man with rocket wings which have flames coming out of them.
Broker Notes

These ASX 200 shares could rise 40%+

Big returns could be on offer from these shares according to analysts.

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Broker Notes

Analysts say these ASX shares are top buys in June

Brokers are urging investors to buy these shares. Let's find out why.

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors finished the trading week on a high note this Friday.

Read more »

A man in trendy clothing sits on a bench in a shopping mall looking at his phone with interest and a surprised look on his face.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Brainchip, Findi, Lottery Corp, and REA shares are falling today

These shares are ending the week in the red. But why?

Read more »

Happy teen friends jumping in front of a wall.
Share Gainers

4 ASX 200 shares leading the charge higher this week

Investors have been piling into these four ASX 200 shares this week. But why?

Read more »

Woman and man calculating a dividend yield.
REITs

What price target does Macquarie have on Goodman Group shares?

Goodman Group posted an interesting set of numbers in Q3. Here's Macquarie's take.

Read more »

A happy investor sits at his desk in front of his laptop and does the mexican wave with his arms to celebrate the returns from his ASX dividend shares
Share Gainers

Why Catapult, Champion Iron, Healthco, and Meeka Metals shares are pushing higher today

These shares are ending the week on a high. But why?

Read more »