ALERT: Warren Buffett Bought Barrick Gold Stock — Should You?

News that Berkshire Hathaway had invested in Barrick Gold (TSX:ABX)(NYSE:GOLD) sent the stock rocketing more than 10% today. But is this stock a buy?

| More on:
Red siren flashing

Image source: Getty Images.

The outstanding success of gold stocks during the pandemic continues this week, as Barrick Gold (TSX:ABX)(NYSE:GOLD) soars +10%. The rocketing share price can be attributed to investment guru Warren Buffett and his famous holding company Berkshire Hathaway. But is Barrick stock a good buy for the general investor? And what might this latest development signal for low-risk portfolio holders? Let’s take a look.

A rocketing blue-chip gold stock

Gold has seen a record bull run of later — and it looks set to continue. Warren Buffett’s Berkshire Hathaway has been rebalancing its exposure to risk, slashing bank shares and packing the yellow metal. Berkshire announced Friday that it has sold off its investment in Goldman Sachs while reducing its stakes in JPMorgan Chase and Wells Fargo.

Of particular note to Canadians should be Berkshire’s new Barrick Gold position. It’s a sizeable stake of 20.9 million shares, totaling more than half-a-billion dollars. If ever there were a signal that risk in the markets is ratcheting, this is it. But Barrick’s rally does two things. First, it makes a slightly too expensive stock even more expensive. Second, it undermines faith in the economy.

Warren Buffett’s bullishness is sure to strike a chord with TSX investors. I highlighted Barrick’s high valuation last week but noted that the miner is “potentially a strong play for upside should higher gold prices prove long-lasting. New investors long on gold could consider building gradually on weakness.” Investors should note that Barrick’s share price has been climbing between Berkshire’s investment and now.

A warning has been sounded on the economy

However, Canadians should also heed warnings about banks stocks. Berkshire’s derisking moves saw the holding company shrink its exposure to moneylenders. Strongly correlated with the economy, dangerously exposed to lower oil, and hamstrung by toxic debt, banks could sour further this year. As such, a reduction in banking exposure and migration to safe havens sets an overall bearish tone on economic recovery.

There is a lot to unpack here. While the Big Five banks are a cornerstone of Canadian dividend investing, they have not performed strongly during the pandemic. Some Canadian investors buying for the long term may wish to disregard the near- and mid-term risk to banks, though, and continue to go long on the strongest moneylenders.

However, if an investor has narrower financial horizons, or possesses a low tolerance for risk, then a portfolio makeover may be prudent at this time. As uncertainty increases, TSX shareholders might want to make like Warren Buffett and trim some risk from a portfolio.

Buying into one of the world’s largest gold mining companies can add some stability to a TSX stock portfolio. This holds especially true for a portfolio heavily weighted by Canada’s largest economic powerhouses, namely energy and banking, which have been kneecapped during the pandemic by lower energy consumption and dour consumer sentiment. Gold just might be the perfect antidote. Warren Buffett certainly seems to think so.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short January 2021 $200 puts on Berkshire Hathaway (B shares).

More on Stocks for Beginners

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Stocks for Beginners

3 TFSA Hacks That Could Make You a Millionaire

Do you want a $1 million without worrying about the tax bill? These TFSA hacks could help you become a…

Read more »

Early retirement handwritten in a note
Stocks for Beginners

These 2 TSX Growth Stocks Could Help You Retire Early

Buying these two TSX growth stocks can help you retire early by multiplying hard-earned savings in the long run.

Read more »

Technology
Stocks for Beginners

The Best Stocks to Invest $1,000 in Right Now

Want a great starter portfolio? Here’s a list of the best stocks to invest $1,000 in right now for long-term…

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »