The resources sector has been a great place to invest over the last few years.
Over the last three years the S&P/ASX 200 Resources index has risen by an impressive 80%. As a comparison, the S&P/ASX 200 has put on a gain of 19.1%.
I believe this shows why having a little exposure to the sector can be a good thing for a portfolio.
With that in mind, should you buy these three resources shares?
BHP Group Ltd (ASX: BHP)
Although the BHP share price has been a strong performer over the last 12 months, I don't believe it is too late to pick up the mining giant's shares. Thanks to its low-cost operations across iron ore, coal, petroleum and copper, I believe it is well-positioned to deliver strong free cash flows over the coming years. And due to its strong balance sheet, I expect the majority of these funds to be returned to shareholders in the form of dividends and share buybacks.
Orocobre Limited (ASX: ORE)
This lithium miner's shares have lost almost half of their value over the last 12 months. The catalyst for this selling has been production issues and concerns over the impact that increasing lithium supply and lower demand is having on prices. Unfortunately for Orocobre, lithium prices have continued to weaken. Last month Orocobre released its half year results and revealed an average price received of US$12,295 per tonne. Whereas in the March quarter it expects to command just US$9,000 per tonne for its lithium. Whilst its shares look good value, I wouldn't invest until lithium prices reach an inflection point.
Rio Tinto Limited (ASX: RIO)
Like rival BHP, this mining giant has been a positive performer over the last 12 months and has put on a gain of almost 20% excluding dividends. It isn't hard to see why investors have been fighting to get hold of Rio Tinto's shares. It recently announced its full year results which revealed that the company generated US$7 billion of free cash flow and a 6% increase in earnings per share to 512.3 U.S. cents in FY 2018. Thanks to favourable commodity prices and its low cost operations, I expect more of the same in FY 2019. This could make it a great option for investors looking for exposure to the resources sector.
