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Top broker rates these ASX resources shares as buys

Over the last 12 months the resources sector has continued to outperform the market average with a sizeable gain.

During this time the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) has put on a gain of over 34%.

I believe this gain demonstrates why it can be good for a portfolio to have a little exposure to the sector.

With that in mind, below are two resources shares that analysts on the Macquarie Group Ltd (ASX: MQG) equities desk have rated as buys this week.

Here’s why they might be worth a look:

BHP Billiton Limited (ASX: BHP)

A note out of Macquarie reveals that its analysts have an outperform rating and $38.00 price target on BHP’s shares. This price target implies potential upside of over 12% excluding dividends. According to the note, the broker expects BHP to complete the sale of its shale assets in 2018. This will give BHP a significant cash balance to use for potential acquisitions or buybacks. Given that management appears happy with its current asset portfolio, the focus may be on buybacks. I think that BHP is the best option in the resources sector right now and would class it as a buy. Though, there is a risk that a global trade war could potentially hold back the mining giant.

Orocobre Limited (ASX: ORE)

Macquarie has also placed an outperform rating on this lithium miner’s shares. According to the note, it has increased the price target on Orocobre’s shares to $6.60, implying potential upside of 24.5%. The broker made the move after revising its commodity price forecasts. Previously, Macquarie was bullish on Orocobre due to the phase 2 work being done at its Olaroz operation. The broker suspects this could result in strong cash flows being generated from the expansion earlier than expected and provide stable production. While I do believe Orocobre has a great asset in Olaroz, I still feel Galaxy Resources Limited (ASX: GXY) has a better and more diversified asset base. Though, both are high risk investments.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. 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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