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Should you buy these 3 ASX resources shares?

Credit: iStock

The resources sector was once again a strong performer in 2017, vastly outperforming the benchmark S&P/ASX 200.

And despite a 1% drop today, the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) is already up 4% in 2018. Considering the bullish forecasts for the global economy and commodity prices, I suspect this strong start could lead to another year of outperformance.

With that in mind, should you buy these three resources shares?

Fortescue Metals Group Limited (ASX: FMG)

I think that Fortescue looks quite cheap at the current share price and could be well worth considering as an investment option today. Especially given its plan to start producing higher grade iron ore. Due to pollution concerns, China has an appetite for higher grade ore at the moment. This has left the low grade ore Fortescue normally produces trading at a significant discount. A successful investment in Fortescue would, however, rely on iron ore prices remaining at the high levels it is fetching currently.

Kidman Resources Ltd (ASX: KDR)

Although I think that lithium demand will continue to grow over the next decade and that supply will fail to increase sufficiently, I do think that Kidman and the rest of the lithium miners have this priced in already. In light of this, I would have to class Kidman as a hold at the current share price. If its shares fell down 10% to 15% I would certainly be a buyer.

Western Areas Ltd (ASX: WSA)

Just like Kidman Resources, this leading nickel producer could be a big winner from the electric vehicle boom. As well as lithium, nickel is used within the lithium-ion batteries used to power electric vehicles. The increased demand this has caused has led to demand outstripping supply and surging prices. I expect high nickel prices to remain for some time to come, potentially leading to a bumper profit result in FY 2018 for Western Areas.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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