Should you invest in these 3 resources shares?

Although the resources sector is far more volatile than the majority of other sectors on the share market, I still believe a little exposure to it can be a good thing for a portfolio.

With that in mind, I thought I would take a look at three popular resources shares to see if there’s an opportunity to make an investment. Here they are:

Although the Fortescue Metals Group Limited (ASX: FMG) share price has climbed over 12% in the last month, it is still down over 10% year-to-date. This would arguably make it an opportune time to invest in the mining giant if iron ore prices continue to rebound. But whether or not prices of the steelmaking ingredient continue to improve is difficult to say. Whilst China is on course to import over one billion tonnes of iron ore from overseas producers in calendar year 2017, I’m not convinced the second-half of the year will be as strong as the first due to stockpiles at Chinese ports reaching high levels. But if you are bullish on iron ore, I would suggest you grab shares whilst they are relatively cheap.

The Kidman Resources Ltd (ASX: KDR) share price has certainly had a week to forget. Since peaking at 78 cents last Monday, the lithium miner’s shares have fallen a whopping 28% to 56 cents. The catalyst for this decline was the surprise decision by management to give up 50% of its world class Mt Holland lithium project to Chilean miner Sociedad Química y Minera de Chile for US$30 million in cash, staged payments of US$80 million, and a US$21.5 million convertible loan note. I can’t say I’m surprised by the sell-off as I feel this undervalued the company’s asset. Should its shares fall below 50 cents then I think Kidman could be a buy, but for now I would suggest investors consider rival Galaxy Resources Limited (ASX: GXY) instead.

The Whitehaven Coal Ltd (ASX: WHC) share price may be up 71% since this time last year, but a couple of brokers still believe it can go higher. Research notes out of Citi and Credit Suisse on Friday revealed that their analysts had placed buy and overweight ratings on the coal miner’s shares, with price targets of $3.30 and $3.20, respectively. Credit Suisse appears to be the more bullish of the two, believing that the outlook for thermal coal prices is solid. Ultimately it is Chinese demand that will decide which way prices go from here. As I’m not overly bullish on coal, I would class Whitehaven as a hold. But like Fortescue, if you believe demand from China will continue to remain strong, Whitehaven could be worth a look.

If the resources sector isn't for you but you love shares with enormous growth potential, then I would suggest you take a look at these hot stocks instead.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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