The Fortescue share price is down almost 10% in February, time to buy?

Is this an opportunistic time to buy the miner?

| More on:
Miner looking at a tablet.

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 Ltd (ASX: FMG) share price has dropped 10% since the end of January. Some investors may be wondering whether this is the right time to invest.

Indeed, the share prices of BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) have both fallen in February 2024 as well, with each ASX mining share dropping by at least 5% this month.

What's going on with the iron ore price?

It's understandable why there is volatility in the market for some miners. The iron ore price has seen a sizeable fall – according to Trading Economics it's now down to US$124.50 per tonne, after starting the month at around US$133 per tonne.

The current price still leaves plenty of room for Fortescue and the other ASX iron ore shares to make large profits, but it does cut into profitability.

Remember, mining costs don't usually change much each month, so extra revenue dollars from a higher commodity price largely translate into extra net profit (before tax) dollars on that production. But, the reverse is true when the iron ore price falls – it largely cuts into net profit.

Making good profits is usually what investors focus on, so a fall in potential monthly profits is going to have an impact.

Is it time to buy Fortescue shares?

The Fortescue share price is down more than 3% today. But, it's still up by more than 30% in the last six months.

I think this business is one of the best in the world at what it does, with low operating costs and a compelling future in green hydrogen, green ammonia and industrial batteries.

I'm a long-term Fortescue shareholder and I believe in the company's future.

However, I'm also a believer that iron ore is a very cyclical commodity. There's no rule that says when the iron ore price will go higher or lower, it's very unpredictable. We don't know when Chinese demand will increase or decrease.

I don't think it makes sense to invest (much) when the iron ore price is above US$120 per tonne. Within the last 12 months, the iron ore price has been below US$100 per tonne.

I'd suggest being patient and waiting for a time when the iron ore price is lower, which I believe will send the Fortescue share price lower, as we've seen over the past few weeks.

The dividend yield could be appealing though. According to the projection on Commsec, Fortescue could pay a grossed-up dividend yield of 11.25% in FY24. But, it wouldn't be helpful for new investors if the Fortescue share price fell by more than that.

Motley Fool contributor Tristan Harrison has positions in Fortescue. 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 Scott Phillips.

More on Resources Shares

Man with rocket wings which have flames coming out of them.
Resources Shares

Up 23% today, why Macquarie forecasts this ASX 200 mining stock could rocket another 33%

Macquarie forecasts more outsized gains to come for this surging ASX 200 mining stock.

Read more »

Three mining workers stand proudly in front of a mine smiling because the BHP share price is rising
Resources Shares

Forget gold! This metal just hit record highs and ASX 200 miner BHP is betting big

Let’s find out why.

Read more »

Three miners looking at a tablet.
Broker Notes

Does Macquarie prefer Rio Tinto, Fortescue or BHP shares heading into 2026?

BHP, Rio Tinto, or Fortescue? Macquarie only expects one of the three ASX mining stocks to outperform.

Read more »

Three miners wearing hard hats and high vis vests take a break on site at a mine as the Fortescue share price drops in FY22
Resources Shares

3 reasons why the Mineral Resources share price is primed to rebound

Can the troubled miner get out of its hole?

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

4 reasons to buy this surging ASX All Ords mining stock today

A leading wealth manager expects more outperformance from this surging ASX All Ords miner.

Read more »

Miner looking at a tablet.
Resources Shares

What's Macquarie's price target on Mineral Resources shares?

The mining operator's share price has fallen 55% in the past year.

Read more »

Female miner smiling in front of mining vehicle.
Resources Shares

Pilbara Minerals share price is climbing higher today: here's why

Lithium shares have been hit by a continued decline in prices over the past year.

Read more »

A boy with a gold crown stands stoically looking straight ahead.
Resources Shares

Step aside Pilbara Minerals: This ASX 200 mining stock is eyeing the lithium throne

Changing the lithium landscape.

Read more »