Warren Buffett’s entry into the Canadian gold market by taking a position in Barrick Gold (TSX:ABX)(NYSE:GOLD) came as quite a surprise for many, especially given the fact that Buffett was previously very vocal about his dislike for gold as an investable asset class. But I assume Buffett now sees the distinction between gold and gold mining, and hence, his newfound interest.
While some may question Buffet’s stint with gold as a bet against the U.S. economy, Barrick Gold is certainly a great pick. In fact, there are solid reasons why every investor should take a dip in this stock.
Barrick Gold overhauled all competition with its sixth straight earnings beat in 2020. Consequently, there was a rise in Barrick’s shares. It was the most profitable major bullion producer of that year. In fact, the fourth quarter saw Barrick register higher output and an impressive 3.8% decline in cost per ounce. It also enjoyed the highest operating margin and lowest debt-to-earnings ratio.
Amidst rising capital expenditures and debt in gold bull markets, Barrick’s debt repayment strategy strengthens the outlook for gold significantly. It does so through a combination of selling non-core assets and increasing operating cash flows.
As a result, Barrick Gold clocked a rise in the overall average asset quality of its portfolio. It currently holds a number of Tier 1 assets, like Pueblo Viejo and Loulo-Gounkoto. Hence, I predict excellent growth prospects for investors who are in for the long run.
Barrick Gold Chief Executive Officer Mark Bristow stated earlier in 2019 that the company is in no rush to pursue aggressive acquisitions. Rather, it’s inclined to act in the best interests of the shareholders. Barrick Gold therefore proposes to return $750 million to its shareholders later in 2021. In its upcoming May annual meeting, Barrick will ask shareholders to vote in favor of a one-time distribution of 42 cents per share. It also declared a $0.09 quarterly dividend per share.
Indeed, it takes a strong management team to come up with this decision after a successful year, instead of going for acquisitions.
Barrick Gold is a great investment avenue regardless of where the current price of gold hovers. It will continue to leverage high levels of free and operating cash flow in the otherwise nasty gold bull market. With its debt-conscious and consistent operating performance, it takes the #1 spot in any long-term investor’s list. I further predict that it will continue to lower the average cost per ounce with time by divesting smaller and less-profitable assets to focus on top-tier operations.
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Fool contributor Chris MacDonald has no position in any of the stocks mentioned.
The post Warren Buffett: Buy this Top TSX Stock appeared first on The Motley Fool Canada.
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