In FY 2018 the resources sector was once again a great place to be invested. During the 12 months the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) put on a gain of approximately 36%.
While a global trade war could impact its performance in FY 2019, I remain confident that a crisis will be averted and the global economy will continue to push on. Which could potentially mean another year of outperformance for resources shares.
With that in mind, are these three resources shares in the buy zone?
BHP Billiton Limited (ASX: BHP)
If a global trade war is avoided then I believe BHP would be a great investment. In my opinion the mining giant has some of the best assets in the sector and, when prices are favourable, is able to generate significant free cash flow. With the prices of many of the commodities it mines favourable right now, BHP could be positioned for strong profit growth this year and next. This could allow BHP to reward shareholders with share buybacks and increasing dividends.
Galaxy Resources Limited (ASX: GXY)
Due to the rise of electric vehicles, demand for lithium is expected to grow at an incredible rate over the next decade. If supply continues to fall short of demand then lithium miners such as Galaxy could be positioned to deliver bumper free cash flows. Opinion is divided on future supply levels, though, which makes an investment in the lithium miners a high risk one. I remain confident that lithium production will be increased responsibly in order to prevent an oversupply, but there's no guarantee this will happen.
Syrah Resources Ltd (ASX: SYR)
Another company looking to benefit from the electric vehicle boom is Syrah Resources. The miner's massive Balama project in Mozambique aims to supply the market with graphite to go inside electric vehicle batteries. Short sellers aren't confident on its prospects though. It has been the most shorted share on the Australian share market for some time now. This is largely due to concerns that Balama will cause an oversupply of the metal. While Balama is potentially a world class asset, I wouldn't be a buyer of its shares until short interest falls.
