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Should you buy these 3 resources shares?

One of the best performing areas of the market over the last month has been the resources sector.

During this time the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) has put on a gain of over 10% compared to a solid 6% gain by the benchmark S&P/ASX 200.

Is it too late to buy these 3 resources shares?

BHP Billiton Limited (ASX: BHP)

If we manage to avoid a trade war then I expect the world’s three largest economies will deliver strong economic growth over the next couple of years. With China, Europe, and the United States all pulling together, demand for commodities is likely to grow and support the favourable prices that are being seen today. In light of this, I think there are few resources companies better positioned to profit from the trend than BHP. As a result, the mining giant continues to be my first pick in the resources sector even after its strong gains over the last few weeks.

Iluka Resources Limited (ASX: ILU)

This mineral sands producer’s shares have been on fire over the last 18 months and almost doubled in value. Strong demand for mineral sands and little scope for increases on the supply side have led to Iluka enjoying improved prices for its produce. Despite its strong share price gain over the last 18 months it is still only trading at 18x estimated full-year earnings. This relatively good price and its positive outlook could make Iluka worth a closer look today.

Orocobre Limited (ASX: ORE)

This lithium miner’s shares are pushing higher on Thursday after it released a presentation ahead of the Macquarie Group Ltd (ASX: MQG) Australia conference. While the presentation didn’t contain any new trading or financial information, it did attempt to alleviate concerns over the outlook for lithium prices. On one slide management pointed out how wrong supply forecasts have been previously. According to the release, planned production increases meant that supply was expected to grow from circa 170 ktpa in 2012 to 400 ktpa by 2016. Whereas supply only increased to circa 200 ktpa during the four-year period. This could potentially mean that the bearish forecasts for lithium are off the mark. While Orocobre isn’t my first pick in the industry after its weak quarterly production update, it does have some great assets that would generate significant free cash flow if prices remain high.

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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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