While many investors will avoid the resources sector due to its volatility, I believe a little exposure to the sector is a great way to maintain a diversified portfolio and can help it outperform the market.
After all, the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) has gained almost 18% in the last 12 months compared to the 4.6% gain from the benchmark S&P/ASX 200.
With that in mind, I thought I would take a look at three popular resources shares to see if there is an investment opportunity today. Here they are:
Fortescue Metals Group Limited (ASX: FMG)
With iron ore in a bear market and prices tipped to weaken further between now and the end of the year as Chinese demand softens, I don't think now is a good time to consider an investment in this leading iron ore producer. When the iron ore price finally finds its bottom then I think Fortescue could be worth a look, but until then I suspect its shares will be dragged lower.
Santos Ltd (ASX: STO)
Although this oil and gas producer's shares have rallied strongly over the last three months, I still think it could be a good option for investors if oil prices remain at their current levels. I've been very impressed at the way that Santos has reduced its costs and is now free cash flow breakeven at US$33 per barrel of oil.
Western Areas Ltd (ASX: WSA)
Much like Santos, Western Areas has worked hard to reduce its costs over the last couple of years. I think this has put it in a great position to deliver bumper profit growth in the future if nickel prices do strengthen. Although prices have weakened recently, they were averaging US$4.75 per pound early on in FY 2018. This was significantly higher than Western Areas' unit cash cost of production of A$2.38 per pound.
