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Warren Buffett's most recent SEC filing showed that Berkshire Hathaway Inc. (NYSE: BRK.A) purchased 20.9 million shares of Barrick Gold Corp. (NYSE: GOLD) in the second quarter.
This raised some eyebrows as Buffett has been pretty outspoken about his dislike of precious metals investments over the years.
In reality, it is unlikely that this was Buffett's call. Rather, it was probably one of the other portfolio managers at the firm – Ted Weschler or Todd Combs – who each manage about $15 billion of Berkshire's investment portfolio.
The total purchase of Barrick Gold cost Berkshire $562 million, which is relatively small for Buffett, and more in line with Ted or Todd's position sizing.
In spite of that, the headlines screamed "Buffett Buys a Gold Stock." And the headline traders piled in, moving the stock price about 11% higher on Monday.
Today, I'll break down what the average retail investor should do with Barrick Gold stock now.
The Case for Gold
Many observers think that gold is on the verge of a new bull market. The dollar has been falling since the beginning of the pandemic. And dollar weakness is bullish for gold.
The continued spread of the coronavirus and the government's response to print $7 trillion has weakened the dollar significantly.
Low interest rates and a weak economy are also somewhat bearish for the trading level of the dollar.
Gold should also be helped by the debt level here in the United States, which is 1.23 times gross domestic product (GDP).
And it's not just been the Fed running the printing press at full speed during the pandemic… Central banks all over the world have been flooding the global economy with their local fiat currencies.
This unprecedented money printing has helped support asset prices in the short term, but it could cause economic turmoil in the long term.
So, gold is seen as the perfect insurance against all this fiscal uncertainty.
Given that outlook, would it be smart to mimic Berkshire's recent purchase of Barrick Gold?
Barrick or Someone Else?
If gold does continue to rally, then Barrick will undoubtedly rise along with it.
Barrick is the second largest publicly traded gold stock on U.S. exchanges. The shares are widely held by the major gold ETFs as well. This would cause the stock to see plenty of uninformed buying as traders pile into the ETFs.
Headquartered in Toronto, Barrick has gold mines around the world as well as copper mines in Chile, Saudi Arabia, and Zambia. The company reported a solid second quarter and is on track to produce between 4.6 and 5 million ounces of gold this year. Analysts expect the earnings growth rate for the next five years to be more than 25% annually.
In short, Barrick Gold is not a bad way to play the coming rally in gold.
However, it might not be the very best way to play the rally…
The Best Gold Stock to Buy Now
Newmont Corp. (NYSE: NEM) is the largest miner that is publicly traded here in the United States. The Colorado-based company also mines for silver, copper, zinc, and lead.
Like Barrick, Newmont is a global company with operations in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia, and Ghana.
Newmont is also having a good year, and management expects business to improve over the second half of the year. The company recently said that it expects to produce 6 million ounces of gold. Newmont also expects to produce approximately 1 million gold equivalent ounces from co-products.
Analysts have an even higher expectation for Newmont's longer-term growth rate. They expect earnings to grow 40% annually.
Newmont might be the better choice for the simple reason that is a little bit cheaper than Barrick Gold. Barrick is trading at 24 times forward earnings, while Newmont has a forward price/earnings (P/E) ratio of just 17 right now.
Newmont also has a slightly higher dividend yield at 1.46% compared to Barrick's 1.06%.
Newmont has a higher forecasted growth rate and a lower P/E multiple, so it might be a better way to capitalize on a new bear market in gold.
Investors who want to make sure they have exposure to the top-performing gold mine, no matter which company takes the lead, might want to consider buying an ETF like VanEck Vectors Gold Miners ETF (GDX).
Barrick and Newmont are the two largest positions in the fund, so you will also have exposure to both of them plus some of the smaller miners that could have higher returns as gold rises.
Three Stocks Even Better Than NEM
Chief Investment Strategist Shah Gilani just held his first-ever stock-picking lightning round event – running through more than 50 stocks to tell you if they are stocks to buy or stocks to sell.
Dozens are overpriced and overhyped – you should ditch them ASAP.
But Shah says THESE three stocks are "screaming buys."
All three are trading at a discount… they're under-the-radar companies most people haven't even heard of… and they have massive tailwinds ready to send their share prices into the stratosphere.
To get the company names, tickers, and price targets for Shah's picks, go here now.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.