Providing the world manages to avoid a trade war, I expect the global economy to grow strongly over the next couple of years at least.
This growth should lead to robust demand for commodities, supporting the favourable prices that are being experienced at present.
In light of this, I think having a little exposure to the resources sector could be a positive thing for most portfolios.
Are these the three resources shares that you should pick up?
Evolution Mining Ltd (ASX: EVN)
The appreciation of the gold price has caught many, myself included, by surprise over the last 12 months. Especially given how interest rates are rising and bond yields are widening in the United States. In theory, the yield-less precious metal should lose its appeal when risk-free bond yields widen, but this hasn’t proven to be the case due partly to the impact President Trump’s protectionist policies. If you believe the gold price can continue at current levels for the next 12 months then Evolution could be a great option.
Galaxy Resources Limited (ASX: GXY)
The long-term outlook for the lithium price is a highly divisive subject right now. There are those that believe that increased supply will lead to prices for the metal halving over the next few years, then there are those that expect that rising demand from the electric vehicle market will offset any new supply and support current prices. Whilst I side with the latter opinion, I am keeping a close eye on supply levels and looking out for any price weakness. With prices remaining favourable, at least for now, I expect Galaxy to generate bumper free cash flows this year, making it an attractive option in the resources sector.
Rio Tinto Limited (ASX: RIO)
I think there are very few shares on the ASX that would prosper as much as Rio Tinto from a strong global economy. If demand for the key commodities it produces remains as strong as expected, then the mining giant could be positioned perfectly to deliver solid earnings and dividend growth over the next couple of years. Another key bonus is its sizeable cash balance following its recent exit from the coal industry. Rather than being invested in new assets, I suspect the majority of these funds will be returned to shareholders through dividends and share buybacks.
Not keen on the resources sector? Then these hyper growth shares could be better options for you.
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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.