Invest Like Warren Buffett: Buy This Top TSX Stock

Warren Buffett ventured into gold miners recently. Here’s why I think Kirkland Lake Gold (TSX:KL)(NYSE:KL) would fit his profile perfectly.

| More on:
close-up photo of investor Warren Buffett

Image source: The Motley Fool

Warren Buffett’s portfolio addition of Barrick Gold (TSX:ABX)(NYSE:GOLD) took the investing world by surprise.

Of course, the Oracle of Omaha has been skeptical of gold as an investment for years. Buffett is a long-term investor focused on the growing cash flows equities provide. Gold as an asset class just didn’t make the cut.

However, gold miners were recently in his wheelhouse. In this context, I’m going to discuss Kirkland Lake Gold (TSX:KL)(NYSE:KL).

Valuation isn’t cheap: It’s dirt cheap

As far as gold miners go, Kirkland Lake has the best fundamentals and valuation of its peer group. This is a world-class global miner, focused on the geopolitically safe jurisdictions of Canada and Australia.

Kirkland Lake’s price-to-earnings ratio of only 13 is absurdly cheap. This is a cash flow-producing machine, trading at less than eight times cash flow at these levels. If gold trends higher, as it should, over the medium term, Kirkland Lake’s margins and cash flow growth will improve further. I think with the amount of stimulus that’s being pumped into the economy, gold is likely to catch a bid. Gold miners provide excellent leverage to the price of gold. Accordingly, stocks like Kirkland Lake are among my top picks for defensive investors right now.

Timing is perfect for an acquisition

As I pointed out in a recent article, I think a deal is likely on the horizon for Kirkland Lake. The gold miner will be looking to replace some of the production it will lose over the medium term. One of Kirkland Lake’s high-grade mines in Australia is nearing the end of its life. Thus, replacing these cash flows will be an important strategic priority.

I think the timing is perfect for gold companies looking to acquire reserves right now. The price of gold has dipped to around US1,750 per ounce. This past summer, gold shot to a record high of above US$2,000 an ounce. Accordingly, all gold miners (Kirkland Lake included) have seen their valuations dip, as investors seem to have lost their bullish sentiment on gold.

For those bullish on the medium- to long-term value of gold, this dip is a perfect buying opportunity. Kirkland Lake has a significant amount of cash to use for an acquisition right now. Additionally, acquisition financing is near historic lows right now.

The stars are aligning for Kirkland Lake. I think investors would be remiss to ignore this opportunity today.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Dividend Stocks

Canadian Dollars bills
Dividend Stocks

1 Dividend Stock That Could Create $5,000 in Tax-Free Passive Income in 10 Years

Here's why Fortis (TSX:FTS) certainly looks like a top dividend stock with outsized total return upside worth buying right now.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

The Best Canadian ETFs $100 Can Buy on the TSX Today

Dividend ETFs like BMO Canadian Dividend ETF (TSX:ZDV) can add passive income to your portfolio.

Read more »

space ship model takes off
Dividend Stocks

Is WSP Global Stock a Buy for its 0.6% Dividend Yield?

Here's why investors should look beyond WSP Global stock's tiny dividend yield.

Read more »

hand stacking money coins
Dividend Stocks

6 Percent Dividend Yield? I’m Buying This TSX Passive-Income Stock in Bulk!

Are you looking for a TSX passive-income titan? Here's one stock that pays handsomely that you will regret not buying…

Read more »

Dividend Stocks

Top Canadian Stocks to Buy Now and Hold for a Lifetime in a TFSA

If you want stability in your long-term TFSA, then these four are choices you can pick up again and again.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Here’s the Average RRSP Balance at Age 54 for Canadians

ETFs like the BMO Canadian Dividend ETF (TSX:ZDV) tend to be good RRSP holdings.

Read more »

how to save money
Dividend Stocks

3 Blue-Chip Stocks Every Canadian Should Own

These blue-chip Canadian stocks offer steady capital gains and are likely to consistently increase their dividend payments.

Read more »

data analyze research
Dividend Stocks

A Dividend Giant I’d Buy Over TD Bank Stock Right Now

Due to regulatory challenges, TD Bank is currently heavily discounted and fluctuating compared to instead of being bullish, like its…

Read more »