Warren Buffett’s latest stock market move has raised some eyebrows on Wall Street. Mr Buffett appears to have reversed a longstanding dislike of gold and invested in this booming sector of the market.
Okay, so he isn’t stockpiling gold bars in an underground cavern. But his firm Berkshire Hathaway has invested around $560m in US-listed gold miner Barrick Gold.
With gold nudging $2,000 per ounce and interest rates in danger of turning negative, Buffett isn’t alone in fancying gold. But what should UK investors buy if they want to follow his lead?
Warren Buffett’s latest buy
Barrick trades under the New York Stock Exchange ticker GOLD. UK investors may already be familiar with this firm — in 2019, Barrick merged with former FTSE 100 gold miner Randgold Resources. Ex-Randgold boss Mark Bristow is now chief executive of the combined company.
If Randgold was still a UK-listed stock, I’d probably suggest buying it. Mr Bristow had an impressive record of developing large, profitable gold mines in Africa. His company generated a lot of cash and paid useful dividends.
However, Randgold’s merger with Barrick resulted in the combined group losing its UK listing. If you’re like me and prefer to invest in UK shares, then you’ll need to look elsewhere for gold mining exposure.
Fortunately, the London market is home to several other dividend-paying gold miners.
A FTSE 100 gold stock I’d buy
The only pureplay gold miner left in the FTSE 100 is Russian firm Polymetal International (LSE: POLY). Although I’m usually cautious about investing in Russia, I’d be quite comfortable owning Polymetal shares.
This £9.5bn group has been listed on the UK market for nearly nine years and has a solid record of profitability and regular dividends. Thanks to the 30% rise in the gold price over the last year, Polymetal’s earnings have been rising strongly.
Analysts expect the company’s profits to double to $928m in 2020 and then to climb a further 21% to $1,113m in 2021. These forecasts leave the shares looking pretty affordable, trading on a multiple of 13.5 times 2020 forecast earnings. There’s also a dividend yield of 4%.
If Warren Buffett is right and the gold price remains stable at current levels, I reckon Polymetal International could be a profitable addition to a UK share portfolio.
I think Warren Buffett might buy this stock
Gold doesn’t generate earnings or income. But gold miners can generate attractive returns for their shareholders. I suspect this is why Berkshire Hathaway has invested in a gold miner rather than buying actual gold.
One UK-listed gold miner that has a strong record of returning cash to shareholders is FTSE 250 firm Centamin (LSE: CEY). This group operates the Sukari mine in Egypt, which boasts an all-in sustaining cost of just $899 per ounce. Shareholder profits rose by 280% to $75m during the first half, as the price of gold climbed.
Centamin has no debt and the firm’s latest results show net cash of $367m at the end of June, after paying an interim dividend of $69m in May.
If you’re positive on the outlook for gold, then I don’t think Centamin stock looks too expensive. At current levels the firm’s shares trade on around 17 times forecast earnings and offer a dividend yield of 4.9%. I rate Centamin as a buy.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.