Many articles currently read: “Warren Buffett is buying Barrick Gold shares.” But this has not yet been confirmed. There is only a stock exchange announcement from which it emerges that Berkshire Hathaway (WKN: A0YJQ2) 21 Mio. Barrick Gold (NASDAQ: NASDAQOTH), which was valued at $ 560 million as of July 2020.
It’s just as possible that one of Buffett’s managers bought Barrick stock. Anyone who reads the Motley Fool regularly could, by the way benefit from my assessment of the share as early as January 2020.
At the time, I saw three main points in favor of the stock: 1) an undervalued gold price, 2) a significantly improved balance sheet situation at Barrick Gold and 3) improved results and prospects. Is Warren Buffett reading the Motley Fool? No, it’s probably more of a happy overlap.
But why could Berkshire Hathaway bought Barrick Gold shares and is it still worth getting started today?
Possible reasons for buying
Let’s say Warren Buffett bought the shares. He is considered a value investor who wants to buy good companies at the lowest possible price and then keep them for the long term. Barrick Gold got into a serious crisis after 2011. As the price of gold fell, so did sales and losses increased. 2013 reached its peak with a loss of 10.4 billion US dollars.
In addition, the debt exploded and the company had taken on some major projects. It was not until 2016 that the profit zone could be reached again. Due to the rising gold price and the balance sheet adjustment, Barrick Gold has been able to grow again since 2015. Still, the business is very capital intensive.
The purchase could have been made due to the current economic situation. The debts of many countries are currently rising rapidly, which is leading to a devaluation of the currencies. This in turn causes the gold price to rise sharply. In addition, it can be assumed that Barrick Gold will report significantly better results this year than in previous years.
So the crisis lies behind the company. $ 560 million sounds like a large sum to us, but for Berkshire Hathaway the purchase is more of a small stake that can be sold off quickly. It could serve as a hedge against a currency crisis. All the reasons that currently speak in favor of the gold price, also have a positive effect on Barrick Gold.
Is it still worth getting started today?
From a value investor’s point of view, Barrick Gold is no longer undervalued, but at best fairly valued. In contrast, there was a strong undervaluation in 2014 and 2015. Nevertheless, the share could benefit from further increases in gold prices. So if you do not want to buy physical gold for security, you can participate in Barrick Gold.
Nevertheless, I personally currently assume that the gold price is slightly overvalued, although this does not rule out further exaggeration. The first corona vaccines will likely come onto the market as early as November or December 2020, which could ease the current situation. Then the gold price would likely correct.
Foolishes Fazit
A purchase as a small hedge seems to make the most sense at the moment, similar to what Warren Buffett or one of his managers did.
The post Berkshire Hathaway to Acquire Barrick Gold Stock! Should we follow suit? appeared first on The Motley Fool Deutschland.
Christof Welzel owns shares of Berkshire Hathaway. The Motley Fool owns and recommends shares of Berkshire Hathaway (B shares) and recommends the following options: short September 2020 $ 200 call on Berkshire Hathaway (B shares), short January 2021 $ 200 put on Berkshire Hathaway (B shares) and long January 2021 $ 200 call on Berkshire Hathaway ( B shares).
Motley Fool Deutschland 2020
– .
