The resource sector is seeing signs of recovery, with gains in oil and iron ore prices after a sustained rout in the last 20 months, but investment bank Goldman Sachs is still underweight on the segment's stocks, it said in a note on Wednesday.
Goldman has three main reasons that now isn't the time to take bets on resources stocks.
First, prices need to remain lower for longer to drive production cuts and remove oversupply, it said.
Secondly, Goldman expects the U.S. Federal Reserve will surprise the market with three interest rate hikes this year, reversing recent U.S. dollar weakness. A stronger greenback typically weighs on many major commodities, which are denominated in the U.S. dollar.
Additionally, resource stocks now trade at valuations about 20 percent above their long-run multiples, Goldman said.