The resources sector has outperformed the market average for each of the last two years. I believe this demonstrates why maintaining a diverse portfolio and having a little exposure to the sector can give it a real lift.
And while there’s no guarantee that the sector will repeat its heroics again over the next 12 months, as long as global trade wars don’t derail economic growth, I’m tipping another positive year for the sector.
With that in mind, are these three shares the ones you should consider buying?
BHP Billiton Limited (ASX: BHP)
BHP is probably the first share that comes to mind for most investors when they think about the resources sector. And there’s a good reason for this in my opinion. The mining giant has some of the best assets around and, when prices are favourable, is a cash flow generating monster. Prices are reasonably favourable right now and have positioned the company for a strong FY 2018 and FY 2019. As long as a trade war is averted, I think it would be a great option.
Galaxy Resources Limited (ASX: GXY)
In my opinion Galaxy is one of the best lithium miners on the Australian share market due to the quality of its portfolio and the strong free cash flows its current operations generate. But that’s not to say that it isn’t a high-risk investment. While I think the recent sale of tenements at its Sal de Vida asset de-risks things slightly, a lot of its future success will depend on lithium prices remaining high. I’m optimistic that new supply will not ramp up as much as feared and prices will remain strong, but it is worth considering what would happen if prices collapsed.
Rio Tinto Limited (ASX: RIO)
Second only to BHP in the resources sector is Rio Tinto in my eyes. Like its sector rival, I think Rio Tinto has some of the highest quality assets in the world. Furthermore, recent sales of non-core assets mean that the company is cashed up. I expect these funds could find their way back to shareholders in the form of share buy backs and special dividends. This could make it worth a closer look, especially for income investors.
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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.