Whilst the resources sector is notoriously volatile and hard to predict, I do believe that a little exposure to it can be a good thing for portfolios.
After all, a good portion of the gain the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) made last year was thanks to resources shares.
With that in mind, I thought I would take a look at a few shares in the sector to see if there is an opportunity to invest.
Fortescue Metals Group Limited (ASX: FMG)
Yesterday the benchmark 62% fines increased a further 4.4% to US$62.33 a tonne, meaning iron ore prices had climbed over 16% from the one-year low of US$53.36 a tonne it set just a couple of weeks earlier. Unsurprisingly Fortescue's shares have rallied strongly during this period as well. While they could still continue to climb higher, I'm not convinced that iron ore prices will stay around these levels for too much longer due to increasing supply and growing inventories. If they do fall back down towards the US$50 mark, I believe Fortescue's share price will be dragged back down as well.
Galaxy Resources Limited (ASX: GXY)
Due to the rise of electric vehicles, renewable energy, and smart devices, demand for lithium is expected to grow at a high rate for the next decade. I believe this level of demand and limited new supply will keep prices of the metal high, allowing Galaxy to profit greatly over the next few years. Whilst it is a high risk investment and unsuitable for the average investor, I feel a recent drop in its share price arguably puts it in bargain territory.
Santos Ltd (ASX: STO)
Although one leading broker believes this oil and gas giant is a buy, I'm yet to be convinced that this is the case. Whilst oil prices have had a good week and risen slightly, I don't expect them to improve greatly for some time to come. Although OPEC is trying to limit its production, not all of its members have done so. This, in combination with rising output from U.S. shale producers, looks set to keep oil prices at low levels for some time. But if and when oil prices do improve, Santos could certainly be worth a look.
