Barrick Gold Corporation (TSX:ABX) has been the target of a large investment worth roughly $564 million by Warren Buffett’s Berkshire Hathaway.
The legendary investor has, in the past, made it known about his negative sentiment to the gold sector. So, why the change of tune?
And once we figure out why Buffet changed his stance on the precious metal, why did he choose Barrick? Why not any of the other top Canadian gold stocks?
Let’s take a closer look at Barrick Gold as a company
In 2019, Barrick Gold managed to mine 5.5 million ounces of gold across the Middle East, Africa, and North and South America.
Currently, the stock is sitting at about $39.50 a share after news of Buffett’s investment broke which is only a few cents short of the 52-week high of $39.98. They have a market cap of $70.23 billion and in February of this year they managed to raise their dividend to seven cents a share from five cents a share. This came after posting large profits in the previous quarter of almost $1.39 billion USD.
On August 10th, the dividend was raised once again to eight cents a share.
Barrick Gold is a solid comeback story
Barrick Gold has seen a strong rebound over the past couple of years as the stock has bounced back 312% from its low point in 2015.
Upon further inspection, it also has strong underlying financial numbers that should have investors excited. Recently it has been aggressive in attacking its debt, reducing it by 25% in the second quarter, and it will look to continue this habit until it can become a net-zero debt company.
The company has no material debt repayments due until 2033 and has a cash balance of $3.7 billion that will be helpful in fending off any downturns in the price of gold or any other issues that the business may run into.
Investors should feel comfortable that Barrick Gold has the potential to move upwards at a rapid pace while still having a strong financial foundation that will allow it to persevere through potential struggles. Of note, analysts expect the company to improve top lines by 21% in 2020 and nearly 30% in 2021. Over the last 6 quarters, Barrick has not missed a single earnings estimate, either coming in line with estimates or exceeding them by a double digit clip.
The investment by Buffett is a little overblown
One thing to keep in mind is the sheer size of Buffett’s Berkshire Hathaway.
With a portfolio worth around $202 billion, this $564 million investment represents just a drop in a much larger bucket.
But while it may represent a small investment to Berkshire Hathaway, Buffett is now the 11th largest investor in Barrick Gold. He is sure to have fans follow him into that position, especially considering his previous public comments which revealed a distaste for gold. Clearly something has changed.
Gold has traditionally been an investment option for those looking for somewhere more on the safe side to park their money. With the novel Coronavirus creating an uncertain economic and political future, more and more investors may choose to park some of their money in gold as Buffett has done.
While it’s impossible to know Buffett’s exact motivation behind this trade, it does seem to indicate at least a slight lack of trust in the short-term future of the equity market.
Because of these factors, gold should continue to trade well in the short term future and those who are looking for a gold company with strong financials could do a lot worse than Barrick Gold. Its strong financials combined with its impressive physical gold production should help investors realize the returns that they are looking for and can be a strong piece for any portfolio type.