Although a lot of investors will avoid the resources sector due to its high levels of volatility and risk, I believe a little exposure to the sector can be a good thing for a portfolio.
After all, a 16% gain by the S&P/ASX 200 RESOURCES (Index: ^AXJR) (ASX: XJR) has played a key role in the 4% gain by the benchmark S&P/ASX 200 index in the last 12 months.
With that in mind, should you invest in these two resources shares?
Fortescue Metals Group Limited (ASX: FMG)
According to the latest data from Metal Bulletin, the spot price for benchmark 62% fines climbed a further 2.4% overnight to reach US$69.48 a tonne. With the iron ore price at this level I think Fortescue is a very attractive investment option, especially with its costs reducing to between US$12 and US$13 per wet metric tonne.
But ultimately it is where iron ore goes next that will determine whether it is a good investment or not. If you are confident that iron ore will continue to defy analysts' forecasts and remain around this level, then I would suggest you snap up shares today.
Western Areas Ltd (ASX: WSA)
Global nickel prices have been under significant pressure in the last 12 months, sending the Western Areas share price down sharply. At present the nickel producer's shares are down 23% year-to-date, even after a very strong rally in the last 30 days.
Like Fortescue, Western Areas has responded to the fall in prices by cutting its costs considerably. This means that if nickel prices do eventually improve, the company will be in a strong position to profit greatly. The good news here is that recent concerns over supply have pushed prices up to their highest level in three months. If prices continue to increase, Western Areas could be a great option for investors in my opinion.
