I think it is fair to say that the resources sector is a notoriously difficult and volatile place to invest.
But having said that, I think a little exposure to resources can be a good thing for a portfolio. After all, a significant part of the strong gain made by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) last year came from the resources sector.
With that in mind, should you invest in these three Australian resources shares?
BHP Billiton Limited (ASX: BHP)
As of its half-year results, approximately 37% of BHP's revenue came from iron ore and 18% came from petroleum. As I am bearish on iron ore and oil prices moving forward, BHP is not a miner that I would consider at this point. Whilst it is undoubtedly a high quality company, until prices become favourable I would suggest investors avoid it.
Galaxy Resources Limited (ASX: GXY)
As demand for electric vehicles continues to increase, I expect the high prices that lithium is commanding will be sustained for some time to come. Especially with supply and demand expected to remain incredibly tight for the next decade. For this reason I think Galaxy could be a great long-term investment. Though it is worth noting that its shares are highly volatile, so an investment wouldn't be for the faint-hearted.
Western Areas Ltd (ASX: WSA)
This leading nickel producer's shares are just a fraction off their 52-week low. A sharp fall in nickel prices and a bleak outlook have been behind the decline. However, it could be argued that this is the bottom of the cycle now, making Western Areas a tempting investment option. While I think it is worth considering, it may be prudent for investors to wait for improvements in nickel prices first.
