Despite concerns over the negative impact of a trade war on global economic growth, the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) has still managed to carve out a gain 3% over the last 12 months.
As a comparison, this benchmark ASX 200 is down 6.5% over the period.
I believe this demonstrates why having a little exposure to the resources sector can be a good thing for a portfolio.
With that in mind, should you buy these resources shares today?
BHP Billiton Limited (ASX: BHP)
If you only wanted one resources share in your portfolio I would make it BHP Billiton. The mining giant is my favourite share in the sector due to the quality and diversity of its operations and the fact that its shares provide an above-average dividend yield. At present BHP Billiton's shares offer a trailing fully franked 4.9% dividend. In addition to this, BHP recently announced plans to return US$10.4 billion to its shareholders through the combination of an off-market buy-back and a special dividend. The latter will be determined on Monday December 17 and paid in January.
Galaxy Resources Limited (ASX: GXY)
Galaxy Resources is one of Australia's leading lithium miners and owns a collection of world class assets across the globe. As well as generating strong free cash flows from its Mt Cattlin operation, Galaxy is cashed up after selling a package of tenements from its Argentina operation to South Korean conglomerate POSCO for US$280 million. If lithium prices remain favourable then I believe Galaxy will prove to be a great investment, but future prices of the battery making ingredient are uncertain due to concerns about an oversupply. Because of this, I feel Galaxy is a high risk option and unsuitable to the average investor.
Rio Tinto Limited (ASX: RIO)
Rio Tinto is another mining giant that I feel could be worth considering due to its high quality operations and generous dividend yield. I'm not the only that thinks this. A broker note out of UBS earlier this month declared Rio Tinto as a buy with a $90.00 price target. This price target implies potential upside of over 20% for its shares over the next 12 months, excluding dividends.
