In today’s daily we have covered stock research on Fortescue Metals (BUY). To view 3 Undervalued Stocks to Buy click here

S&P 500 was up by 7.22 points or 0.38% to 1885.08 on Monday. Tech stocks are outperforming the broader market on Monday with Apple Inc taking charge, up 1.2 percent at $604.59. Along with Apple, Google shares are up 1.6 percent and Facebook Inc are up 2.1 percent.

Equities have been pressured recently, with the S&P 500 coming off, its first two-week decline since January as investors have become concerned about the U.S. economy's growth prospects. The central bank will release on May 21 minutes from its latest meeting. Policy makers said last month the economy is showing signs of picking up and the job market is improving. The central bank pared its monthly asset-buying and said further reductions in “measured steps” are likely.


S&P 500 Daily Chart   (Source – Thomson Reuters)
 
S&P ASX 200was down by 70 points or 1.28% on Monday and closed at 5409.0 points. Iron Ore prices slipped below $US 100 a ton for the first time in 2 years leading to heavy losses among the Australian miners with Fortescue Metals plunging to its lowest level for the year and Rio Tinto also hit hard. Junior Iron Ore miners suffered as well with Atlas Iron and BC Iron dropping as well.

Goodman Fielder was the best performer yesterday due to a sweetened deal from the foreign buyers. Danish pension fund PKA has backed the purchase of $60 million worth of cattle stations in Queensland through Sustainable Land Management Partners.


S&P ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 





Stock of the Day – Fortescue Metals (FMG)
 
March Quarter iron ore shipments of 31 million tonnes met expectations, a 15% increase on the previous quarter as Fortescue’s expansion to 155 million tonnes per annum completes. There is some market skepticism about the company’s ability to meet fiscal 2014 guidance for iron ore shipments of 127 million tonnes which will require 42 million tonnes of ore to ship in the fourth quarter almost one third above the March record.

Despite the gloom around China’s steel demand, the output of crude steel picked up 6% to a new high of 79 Mt in March and steel traders stocks are declining, so there does not look to be demand weakness depressing iron ore price. Rather it is the iron ore supply wave that has finally caught up with China’s demand. The negative elements of the story are well known, port stocks are high and spot tenders plentiful, so price tension is slack and the buyers can pick and choose. If anything this is expected to increase in the next few months as Rio Tinto and Fortescue ramp up expansions to full capacity.



Source - FMG

Looking for positives in the iron ore price story, we note that it is unlikely that China is set for a buyers strike that might sharply cut prices like August 2012, because mill stocks are already low so operations could not be sustained. Credit is tight so mills working capital is lean. So while pricing tension is weak buying activity remains brisk. A lesser known element of the demand story is that implied scrap usage appears very high at present (14%). On historical trends scrap usage should revert to a longer term average of 9-10%, which should boost demand for iron ore by perhaps 4Mt per month to make up the lost iron units.


FMG Daily Chart  (Source - Thomson Reuters)
 
It seems the days of buoyant $130/t iron ore prices are past and we are into $90-$110/t range. Understandably fear has driven investors for the exit from iron ore stocks. Exiting may have been a suitable trading play to beat the rush, given the others will do the same, but the big iron ore producers still generate enviable margins at these lower prices, which few other sectors would be able to compete with. FMG is looking very cheap at its current price and we reiterate our BUY on the stock at the current price of $4.37.

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.
Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).
The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.
Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.
The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide.