I think that having a little exposure to the resources sector would be a very good thing for a portfolio.
This is because as well as offering the benefits of diversification, I believe there are strong potential returns on offer in the sector again this year.
But which resources shares should you buy? Here are three that I would consider buying:
BHP Group Ltd (ASX: BHP)
I think BHP would be a good option for investors looking for exposure to the resources sector. This is due to the mining giant's portfolio of assets that are amongst the highest quality in the world. Thanks to their low costs and favourable commodity prices, these assets have been generating significant free cash flow for BHP. The majority of which has been returned to shareholders through dividends and buybacks. As long as the coronavirus doesn't curtail global economic growth, I feel confident there will be more of the same in FY 2020 and FY 2021.
Rio Tinto Limited (ASX: RIO)
Another top option to consider in the resources sector is Rio Tinto. It also owns a number of world class assets across several different commodities. This has allowed the mining giant to generate strong free cash flow over the last few years. And as with BHP, it has returned the majority of it to shareholders through dividends and buybacks. If iron ore prices remain favourable in the near term, I expect Rio Tinto to be in a position to reward shareholders with generous dividends again in 2020.
Saracen Mineral Holdings Limited (ASX: SAR)
If you're looking for exposure to the gold industry, then I think Saracen Mineral could be a great option. This is due to its attractive valuation, strong performance in FY 2019, and its very positive medium term outlook. In respect to the latter, a note out of Goldman Sachs reveals that it believes Saracen Mineral has the most compelling production and earnings growth profile under its coverage. It has forecast production of >800,000 ounces by FY 2024. This will be a material increase on the 500,000 ounces it expects to produce in FY 2020.