Although the resources sector is notorious for its volatility, I still believe a little exposure to it can be a good thing for a portfolio.
After all, the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) has gained 20% over the last 12 months and played a key role in taking the benchmark S&P/ASX 200 index higher.
With that in mind, I thought I would take a look at a couple of shares to see if there's an investment opportunity. Here they are:
Fortescue Metals Group Limited (ASX: FMG)
As a pure play iron ore producer, a successful investment in Fortescue depends almost entirely on the iron ore price and the 58% fines to be precise. Whilst Chinese demand has been strong this year and surprised many forecasters, I'm still reasonably doubtful that the base metal will be able to remain at these high prices for much longer. As a result, I won't be making an investment at this point. But if you are bullish on iron ore demand then this low-cost iron ore producer would be your best bet in the industry in my opinion.
Santos Ltd (ASX: STO)
Another company that has transformed itself into a low-cost producer is Santos. The oil and gas giant recent advised that it has reduced costs down so much it is now free cash flow breakeven at US$33 per barrel of oil. Whilst I'm not overly bullish on oil prices, I expect them to remain range-bound between US$45 and US$55 a barrel for the foreseeable future. At this level Santos remains highly profitable and should be in a position to grow its dividend. In light of this, I think Santos could be worth a closer look today.