I believe that having a little exposure to the resources sector can be a good thing for a portfolio.
You only need to look at the performance of the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) over the last 12 months to see how it could have given most portfolios a lift.
During this time the resources index has climbed a sizeable 27%.
While I'm not convinced this level of outperformance will continue over the next 12 months, I do believe it could still outperform the S&P/ASX 200 if global economic growth is not negatively impacted by trade wars.
With that in mind, are these three resources shares in the buy zone?
BHP Billiton Limited (ASX: BHP)
One of the key contributors to the S&P/ASX 200 Resources' gain over the last 12 months has been this mining giant. Its shares have stormed higher during this time and hit a 52-week high this morning. Despite this strong run I don't believe it is too late to invest. Thanks to favourable commodity prices BHP delivered a bumper US$8.9 billion profit in FY 2018. I expect more of the same in FY 2019 and potentially even a special dividend following recent asset divestments.
Monadelphous Group Limited (ASX: MND)
This engineering company's shares have risen 15% over the last three months thanks to an improving outlook and a series of contract wins. The most recent was earlier this week when it was awarded a major contract with BHP subsidiary BHP Billiton Iron Ore Pty Ltd. The contract is for the provision of general maintenance services for shutdowns, outages, and minor capital works at its Mt Whaleback, Jimblebar, Eastern Ridge, Mining Area C, and Yandi operations. Management advised that the contract will be worth $240 million over a three-year period. While I do like Monadelphous, I think its shares are about fair value right now based on its work in hand.
Orocobre Limited (ASX: ORE)
Orocobre is the lithium miner behind the Olaroz operation in Argentina. Its shares have fallen notably lower over the last 12 months due to concerns over the future price of the battery making ingredient. Some analysts believe that increasing supply will lead to prices crumbling over the next few years. While I think that its shares look extremely attractive at this level based on current lithium prices, a lot will depend on whether prices hold at these levels in the future. Although I'm optimistic that they will, I think the prudent thing to do is to wait for proof before parting with your money.
