Whilst the resources sector is notorious for its volatility, I still believe a little exposure to it can be good for a portfolio.
After all, resources shares make up a significant portion of the Australian share market and played a key role in the strong gain made by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) last year.
With that in mind, is it time to invest in these resources shares?
BHP Billiton Limited (ASX: BHP)
As I mentioned last week, BHP was recently upgraded to a buy rating with a $27.50 price target by Deutsche Bank. The investment bank appeared to be bullish on the mining giant due to its focus on automation, productivity, and high-returning growth projects. Whilst I do agree with Deutsche on these points, I would only be a buyer of BHP shares if I was confident iron ore and oil prices would at least remain at their current levels. But as I'm bearish on both, I'll be staying clear of the mining giant for the time being. But if you're bullish on those commodities, now could arguably be a good time to snap up shares.
Galaxy Resources Limited (ASX: GXY)
I believe this lithium miner is a great option for investors with a high tolerance for risk thanks to the global shift away from a reliance on fossil fuels. Last week certainly appeared to be a taste of things to come in my opinion and a big thumbs up for lithium. Not only did Tesla announce plans to build the world's largest lithium battery in South Australia, but Volvo signalled its intention to build only electric and hybrid vehicles starting in 2019. I believe the incredible demand for the metal and the limited amount of new supply coming to market will mean lithium prices remain high for the foreseeable future. This should put Galaxy's Mt Cattlin in a position to deliver bumper profit growth. Especially with production growing strongly.
Western Areas Ltd (ASX: WSA)
Whilst I think Western Areas will be a great investment when nickel prices become favourable due to its cost cutting and efficiency improvements, it remains unclear as to when this will happen. Last week the Indonesian government further eased its nickel export ban by giving PT Ceria Nugraha Indotama permission to export 2.3 million tons of nickel ore. This sent nickel prices lower by 3% to US$9,130 per tonne according to Metal Bulletin. In light of this, I would suggest investors hold off an investment for the time being.
