Are Fortescue shares a good buy amid the stock market tariff sell-off?

Should investors dig in with this iron ore miner?

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The Fortescue Ltd (ASX: FMG) share price has taken a hit, just like many other stocks in the last few weeks. With how Fortescue sells vast quantities of iron ore to China, the ASX mining share is not immune to the effects of the global trade war.

The US announced a 34% tariff on goods coming from China, so China responded with a 34% tariff on US goods.

A global trade war is not ideal, and it could impact how much iron ore China wants to buy if its economy weakens. However, the hefty decline of the Fortescue share price – down 25% in two months at the pre-open price – could be overdone and an opportunity.

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Iron ore price remains strong

A share price should reflect the market's view on the company's ability to make a profit in the future, in my view.

Seeing as Fortescue generates virtually all of its profit from iron ore, any changes in the commodity price could be very important.

According to the latest update from Trading Economics, the iron ore price was still above US$102 per tonne thanks to increased demand from Chinese steelmakers, despite concerns about US tariffs.

Supporting demand for iron ore was the continued growth of hot metal production in March – this is a key indicator of iron ore consumption. Factory activity in China grew at its fastest pace in four months, supported by strong exports, according to Trading Economics.

However, on the negative side of things, home prices in 100 cities fell further, which implies ongoing weakness in the property sector.

The Australian Financial Review quoted BHP chief commercial officer Rag Udd, who is optimistic about solid Chinese demand continuing. He said:

I still hear conversations taking place about residential construction markets tanking in China. But the equal and opposite conversation that gets missed is that machinery has gone from single digits to over 30 per cent of steel demand. EV production has gone up. Anything to do with decarbonisation has gone up.

So you've got a country that's actually running at that billion tonnes of steel production per year rate, and has been quite consistently for the last six years, and I can see a pathway for that continuing in the next few years.

That is not based on any one sector, but based more on the resilience and the adaptability and how fast China moves when it pivots to new industries and opportunities. The Chinese market is much more resilient and agile than people recognise.

We still see cost support in the $US80 to $US100 price range moving forward – I think depletion will factor into it. I think inflation will be the other element that kicks in. I actually see quite a healthy market moving forward.

Is the Fortescue share price oversold?

According to reporting by the AFR, JPMorgan analyst Lyndon Fagan believes that market fears of an iron ore price crash were "overblown", and ASX mining shares like Fortescue were among its top picks.

JPMorgan forecasts that the average iron ore price could be US$100 per tonne in 2025, US$95 per tonne in 2026, and US$94 per tonne in 2027.

If Chinese demand does hold up relatively well, I think Fortescue shares could be significantly undervalued during this sell-off, particularly if the miner drops any further.

As a bonus, the reduction of the Fortescue share price and potentially resilient iron ore price could mean an appealing dividend yield continues.

JPMorgan Chase is an advertising partner of Motley Fool Money. Motley Fool contributor Tristan Harrison has positions in Fortescue. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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