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Should you buy these 3 top resources shares?

Over the last 12 months the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) has outperformed the market significantly with its 17.6% push higher.

If President Trump doesn’t derail the strong global economy with his trade talks, I expect the resources index to continue its outperformance over the next 12 months.

This could make it an opportune time to consider adding a little resources exposure to your portfolio.

With that in mind, are these three resources shares in the buy zone?

BHP Billiton Limited (ASX: BHP)

If the global economy continues to grow strongly this year then I believe demand for commodities will support current or even higher prices. This would be a big win for BHP Billiton shareholders. As the majority of brokers appear to have lower commodity prices factored into their valuations for BHP in FY 2019 and onwards, if prices do remain stable then broker forecasts for the mining giant’s earnings could be revised much higher. This is likely to lead to a meaningful increase in its share price.

Fortescue Metals Group Limited (ASX: FMG)

Yesterday Fortescue revealed that the discount for its low-grade iron ore compared to the benchmark 62% fines is widening. This has happened because Chinese steel makers have been favouring higher grade ore that is less polluting. While I don’t expect the discount to widen much further from here, I do think the discount could last longer than first expected. In light of this, I would class Fortescue as a hold until the discount narrows.

Orocobre Limited (ASX: ORE)

Opinion is largely divided on the future of lithium prices. There are those that believe that a large increase in supply in Argentina and Australia will ultimately lead to an oversupply and the halving of prices, then there are those that believe that increasing demand from electric vehicle and renewable energy markets will keep supply and demand balanced for the foreseeable future. For now I’m siding with the latter opinion. I think there are signs that battery makers in particular don’t expect there to be an oversupply any time soon and have resorted to signing long-term off-take agreements. This could make Orocobre worth considering, though it is a high risk investment and investors ought to keep a close eye on lithium prices for hints of weakness.

But if Orocobre is too high risk for your liking then one of these hyper growth companies could be great options for you.

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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 Scott Phillips.

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