The resources sector has come under a little bit of pressure recently due to concerns over a global trade war.
However, I remain optimistic that tensions will not escalate to a level that derails the strong global economic growth that is being exhibited.
If this proves to be the case then demand for commodities should remain strong, supporting favourable prices for many of Australia's producers. Because of this, I believe the resources sector could still outperform the market again over the next 12 months.
Should you buy these resources shares?
Australian Vanadium Ltd (ASX: AVL)
If 2016 was the year of lithium and 2017 was the year of cobalt, I think it's fair to say that 2018 looks set to be the year of vanadium. The metal, which is named after the Scandinavian goddess of beauty Vanadis, is mostly used in alloys to strengthen steel. Demand for vanadium in this market is expected to rise thanks to China tightening standards on the strength of rebar with the aim of making buildings more earthquake-proof. But it is its use in vanadium redox flow batteries that has investors most excited. According to the Economist, experts believe these massive batteries are a better option for storing large amounts of wind and solar energy than stacks of lithium-ion batteries. Australian investors are betting on Australian Vanadium being a big winner from this boom and it does appear to be worth a closer look given the meteoric rise of the vanadium price.
BHP Billiton Limited (ASX: BHP)
This morning BHP announced the sale of its onshore assets in the United States for a total of US$10.8 billion. I believe this was a smart move by the company and expect the funds to be returned to shareholders in the form of share buybacks or dividends. This could make it a great option for income investors. But it isn't just an income story, thanks to its diverse portfolio of world class assets and the positive outlook for global growth, I believe BHP could also grow earnings at a solid rate over the coming years.
Rio Tinto Limited (ASX: RIO)
Rio Tinto is my second favourite resources share right now just behind BHP. Much like BHP, Rio Tinto has been busy offloading non-core assets of its own this year and is likely to return these funds to shareholders. Combined with the positive outlook for its earnings thanks to solid global growth, I think it would be a great option for those looking for exposure to the sector.
