Is it time to jump into resources shares?

Some resources companies have seen their share prices rise by as much as 50% and 60% in the past month alone

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published March 15, 2016 1:47 pm AEDT

With commodities prices recovering, oil prices rising nearer to US$40 a barrel and iron ore at US$55 a tonne, Australia's ASX-listed resources companies have gone for a decent run over the past month.

Diversified miner South32 Ltd (ASX: S32) is up 49% to $1.60 in the past month.

Companies servicing both the resources and energy sectors have also seen strong gains in their share prices with Worleyparsons Limited (ASX: WOR) up nearly 70% in the past month alone to trade at $5.35.

Junior oil and gas producers have also posted strong gains, including AWE Limited (ASX: AWE) up 63% to 64.7 cents and Beach Energy Ltd (ASX: BPT) up 60% to 71.2 cents. Former market darling Liquefied Natural Gas Ltd (ASX: LNG) is up 24%.

Larger companies like Santos Ltd (ASX: STO), Iluka Resources Limited (ASX: ILU), BHP Billiton Limited (ASX: BHP) and Western Areas Limited (ASX: WSA) have also posted double-digit gains in their share prices.

By comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up just under 6% over the past 30 days.

Yesterday we wrote that the International Energy Agency (IEA) said it was seeing signs that oil prices had bottomed, but the IEA is not the first to call a bottom for the oil price, with all previous callers obviously getting their forecast wrong. However, the IEA did say risks still lay to the downside, as demand has yet to catch up to falling supply.

We also note that several participants in the iron ore market, including China's Iron and Steel Association, BHP and Rio Tinto Limited (ASX: RIO), along with a number of analysts and fund managers forecasting that the current iron ore price can't be maintained. I believe they may be right in this instance, with iron ore falling for five consecutive trading days now, following the massive 18% overnight surge last Monday.

Foolish takeaway

The rise in commodity prices could prove to be a false dawn – in which case the gains by many of the companies mentioned above could turn out to be temporary. As I'm not a short-term trader, I'll continue to focus on high quality industrial companies that don't have to rely as much on external factors for their growth.

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