I think a little exposure to the resources sector can be a great thing for a portfolio due to the diversification that it provides.
However, not all resources shares are equal and some are more likely to outperform than others.
Three resources shares that brokers think are in the buy zone today are listed below. Here’s why they rate them as buys:
Mineral Resources Limited (ASX: MIN)
According to a note out of Ord Minnett, its analysts have retained their buy rating and $20.50 price target on the miner and mining services company’s shares following the release of its first-half results. The broker appears pleased that the company delivered earnings ahead of its expectations. Mineral Resources reported an 8% increase in underlying EBITDA to $250 million and advised that it expects to achieve its full-year guidance of a minimum of $500 million in underlying EBITDA. I think Mineral Resources is a great option for investors while iron ore and lithium prices remain favourable.
Mount Gibson Iron Limited (ASX: MGX)
A note out of the equities desk of Macquarie reveals that its analysts have retained their outperform rating and 55 cents price target on the iron ore miner. According to the note, Mount Gibson Iron delivered a first-half profit result well ahead of the broker’s estimates. Furthermore, the broker appears pleased that the company’s Koolan Island development is on track to commence production early next year. Whilst it wouldn’t be my first pick in the resources sector or even amongst the iron ore miners, it could be worth a closer look after its strong first-half result.
Rio Tinto Limited (ASX: RIO)
Analysts at Deutsche Bank have retained their buy rating and $84.00 price target on the mining giant’s shares. According to the note, Deutsche has begun to work in the miner’s potential exit from its Grasberg operation in Indonesia. The broker appears disappointed by its planned sale, but notes that offloading it would be a big positive to its environmental, social and governance rating. According to the News Limited press, Deutsche has previously stated its belief that a cash sale for above $US3.5 billion would be well received by the market despite being NPV-dilutive. I would agree with Deutsche on Rio Tinto and believe it is one of the better options in the sector at the moment, just behind BHP Billiton Limited (ASX: BHP).
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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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