Due to strong global growth and increasing commodity prices I believe the resources sector has the potential to outperform the broader market once again in 2018.
Two popular resources shares which I think could do a lot of the heavy lifting are listed below. Here's why I think it could be worth adding them to your portfolio:
BHP Billiton Limited (ASX: BHP)
In FY 2017 iron ore, petroleum, and copper accounted for 81% of this mining giant's EBITDA. As I'm bullish on these three commodities and expect them to average much higher prices in 2018 than in 2017, I feel BHP could be in a position to deliver bumper profits and strong free cash flow. This should allow it to increase its dividend further, which currently provides investors with a trailing fully franked 3.7% yield.
Fortescue Metals Group Limited (ASX: FMG)
Thanks to improved iron ore prices and management's decision to increase the grade of its produce, I think Fortescue could outperform the market in 2018. This year I've been very impressed with the reduction in both its costs and its debt and expect more of the same next year. The share price could get an additional lift if it follows up on its plan to expand into mining lithium. I think diversifying its business would be a smart move and insulates it somewhat from iron ore's wild swings like Rio Tinto Limited's (ASX: RIO) business does.
