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The resource sector has outperformed the market average for each of the last two years. I think that shows why maintaining a diversified portfolio and low exposure to the sector can give it a real boost.
And even if there is no guarantee that the sector will repeat its heroism again in the next 12 months, as long as global trade wars do not derail economic growth, I take advantage another positive year for the sector.
With this in mind, these three actions are the ones you should consider buying?
BHP Billiton Limited (ASX: BHP)
BHP is probably the first part that comes to mind for most investors when they think of the resource sector. And there is a good reason for that in my opinion. The mining giant owns some of the best assets and, when prices are favorable, it generates cash flow. Prices are reasonably favorable at this time and have positioned the company for the good 2018 and 2019 fiscal years. As long as a trade war is avoided, I think it would be a good option.
Galaxy Resources Limited (ASX: GXY)
In my opinion, Galaxy is one of the best lithium miners on the Australian stock market because of the quality of its portfolio and the strong free cash flow generated by its current operations. But that does not mean that it is not a high risk investment. Although I think that the recent sale of housing on its assets of Sal de Vida somewhat mitigates the risks, much of its future success will depend on the rise in lithium prices. I am optimistic that the new offer will not increase as much as feared and that 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 resource sector is Rio Tinto in my eyes. Like its rival in the industry, I think Rio Tinto has some of the highest quality assets in the world. In addition, recent sales of non-core assets mean that the company is cashed. I think these funds could go back to shareholders in the form of share buybacks and special dividends. This could make it worthwhile to take a closer look, especially for income investors.
Not keen on shares of resources but looking to diversify? Check out these top four choices then.
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Motley Fool Contributor James Mickleboro owns shares in Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We fools may not all have the same opinions, but we all believe that taking into account a wide range of perspectives makes us better investors. The Motley Fool has a disclosure policy. This article contains only general investment advice (AFSL 400691). Authorized by Scott Phillips.
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