Recently, Warren Buffett, the CEO of Berkshire Hathaway Inc. BRK.B, disclosed his quarterly (April-June) 13F filings with the Securities and Exchange Commission.
The portfolio of the legendary investor shows stocks being shuffled. Interest in airline stocks, petroleum companies, restaurant chain and media stocks were cut and stakes were added in supermarket, energy, REIT stocks.
The most intriguing changes to this investment portfolio are the reduction in bank stakes and financial transaction services stocks and a new investment in gold mining stock Barrick Gold Corporation GOLD, one of the leading gold company of the world, based in Canada.
Most notable is that has been picked by Buffett for the first time although the company doesn’t account for a big chunk of his (0.28%) investment portfolio. No matter how small the investment looks, it gets noticed as for the first time, Buffett indirectly took a shine to gold despite being staunchly against parking his money on it as the yellow metal is considered of low productive value. But the surge in gold price is likely to generate high returns on the gold mining stocks.
The filing showed 9%, 15%, 26%, 41%, 61% and a 100% decline ( sequential) in investments in the stocks of Bank of New York Mellon, M&T Bank, Wells Fargo, PNC Financial Services, JP Morgan Chase, Goldman Sachs. Other than these, shares of financial transaction service providers, namely Visa and Mastercard’s were trimmed.
This move by the most followed investors reflects that the banking and the financial services — the most important sector of an economy — is likely to remain under stress, which in turn, means that the pain in the economy is going to persist.
Buffett’s investing style is, in fact, quite simple. He believes in the buy-and-hold policy. The veteran investor looks for long-term investment in companies with strong profitability, such as high return on equity and strong margins and those with long-term competitive edges and solid business models. Last but not the least, Buffet scans the economic scenario before placing his bets. Thus, any change in his portfolio composition is indicative of long-term trends in that business.
Gold Gains
Gold has outperformed all major asset classes so far this year, gaining nearly 26%, primarily driven by the COVID-19 pandemic-triggered global uncertainty. Though equity markets around the world rebounded sharply from their March lows, the high level of unpredictability surrounding the pandemic and strong liquidity created by stimulus measures from the world’s central banks supported flow into gold as investors grew more risk averse.
The uptrend in gold prices is likely to continue, given supply constraints and ever increasing demand. Growth in supply of gold has changed little over time, increasing a mere 1.6% over the past 20 years. But demand for the precious yellow metal will likely move higher, given that it is one of the most established modes of investment and is a reserve asset. Moreover, it is highly liquid, carries no credit risk and is scarce. Therefore, the demand-supply play is likely to jack up the prices of gold going forward.
Analysts worldwide are bullish on the prices of gold until the total number of Covid-19 cases, globally, are brought under control or a vaccine is introduced in the market, which still seems to be a few months away. Regardless of the recovery type, the pandemic will likely have a lasting effect on asset allocation.
Industry Performance
On the back of the gold-price rally, the Gold Mining industry has gained 40.4% year to date against the Zacks S&P 500 Composite gain of 4.5%.
Banks in Pain
The near-zero interest rates set by the Federal Reserve is hurting banks’ margins. Also, the dull economic activity dimmed demand for corporate loans, largely hitting banks’ revenues in turn. Given that the low interest rate scenario will continue unless the economy regains strength, the pain for banking sector is here to stay.
In addition, banks’ asset quality is expected to continue to deteriorate with the slowdown of economic growth, resulting in higher delinquency rates. Recently, Goldman Sachs issued an open letter to US Congress, urging support for 1,00,000 small businesses. This shows that the loans given to these small business units by banks might turn into, non-performing loans if these businesses fail to run. Such a grim possibility implicitly reflects the banks’ predicament. Banks have thus been building extra provisions to tide over the unexpected defaults and payment delays. However, this effort may dent their bottom line in the near term.
Further, new restrictions placed by the Federal Reserve on the US banks requiring large them to preserve capital by suspending share repurchases, capping dividend payments and re-considering longer-term capital plans, are jeopardizing the industry.
Invest in These 4 Gold Mining Stocks Now
The current market scenario makes gold mining stocks a good bet. Gold miners are set for a strong performance this year as steep gold prices will boost their top-line performance while lower oil prices will aid margins.
We thus mention the following stocks to add to your portfolio:
Barrick Gold Corporation is expected to gain from progress in key growth projects. A significant portion of its exploration budget is allocated to the Americas. Its debt-reduction actions are also expected to curb interest expenses. The company also has a strong liquidity position and generates healthy cash flows. Moreover, its merger with Randgold and joint venture with Newmont provide an additional upside. The joint venture combines their respective mining operations, assets, reserves and resources. The merger formed an industry-leading gold company. Higher gold prices are also likely to contribute to margins.
The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for current-year earnings has been revised 3.3% upward over the past seven days.
For the current year, earnings are expected to grow 80.39% compared with the industry’s growth of 19.3%.
Eldorado Gold Corporation EGO is a gold producing and exploration company with gold assets in Brazil and Turkey.
The stock has a Zacks Rank of 1 at present. The Zacks Consensus Estimate for current-year earnings has moved 20.8% north over the past seven days.
For the current year, earnings are expected to surge 2250% compared with the industry’s growth of 19.3%.
Pretium Resources, Inc. PVG is engaged in acquisition, exploration and development of precious metal resource properties in the Americas. The company owns the Snowfield and Brucejack projects located in Northwest British Columbia, Canada. Its mineral interests consist of gold/copper/silver exploration projects.
The stock has a Zacks Rank #2 (Buy), currently. The Zacks Consensus Estimate for current-year earnings has increased 17.8% over the past seven days.
For the current year, earnings are expected to grow 20% compared with the industry’s growth of 19.3%.
Yamana Gold Inc. AUY is a Canadian gold producer with significant gold production, gold and copper-gold development stage properties, exploration properties and land positions in all major mineral areas in Brazil.
The stock presently has a Zacks Rank of 2. The Zacks Consensus Estimate for current-year earnings has been raised 43.7% over the past 30 days.
For 2020, earnings are expected to soar 76.92% compared with the industry’s growth of 19.3%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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