September 2, 2020

Barrick Gold’s Newest Shareholder – Berkshire Hathaway

by Tajinder Dhillon.

Gold prices have surpassed the $2,000/oz. mark, making it one of the best performing asset classes year-to-date.  A combination of flight to safety and a lower U.S. dollar contributed to the precious metal reaching an all-time high in August.  This brought the Oracle of Omaha, Warren Buffett, to enter the gold arena and make a sizeable investment in Canadian gold miner Barrick Gold (ABX.TO / GOLD.K).

Looking at Refinitiv Eikon, we can see Berkshire Hathaway purchased over 20 million shares of Barrick Gold according to the latest 13F filing, which equates to a 1.18% holding in the company, making it the 11th largest shareholder.  Exhibit 1 highlights the $563 million-dollar transaction in more detail. To view this data, please visit the “Shareholders Report” page under “Ownership.”

Exhibit 1: Barrick Gold Shareholders Report

Source: Refinitiv Eikon

A 13F filing is due within 45 days after the end of the calendar quarter, which meant that this transaction was made public in mid-August.  While this was a surprise to many in the market, the StarMine Smart Holdings Model already saw this coming.

The StarMine Smart Holdings Model predicts forward changes in institutional buying and selling by determining which factors are currently favored by institutional investors and which stocks are becoming more or less desirable in the current environment. Twenty-five fixed factors across volume, price momentum, profitability, value, growth, analyst revisions and leverage are utilized and ranked from most popular to least.

Barrick Gold has a Smart Holdings score of 100, the highest score possible, as shown in Exhibit 2. In other words, the model is stating that the fundamentals of this company are well-aligned with the fundamentals that the street is looking for at that time.

Exhibit 2: Barrick Gold Smart Holdings Model

Source: Refinitiv Eikon

There are two components to the Smart Holdings Model.  The first component is Institutional Screening, which means how likely is a company to pass the “screen” of an investment manager.  The second component is Change Component, which captures how a company is increasing/decreasing their fundamental alignment with market preferences.

Barrick Gold has a percentile score of 100 compared to its regional peers in North America, and a score of 100 at both a country and sector level.  Looking at the model score as of today is not as interesting and instead, we show the history of the Smart Holdings model since the beginning of the year, as shown in Exhibit 3.

Exhibit 3: Barrick Gold Smart Holdings Model

Source: Refinitiv Eikon

Interestingly, Barrick Gold has maintained its Smart Holdings score of 100 since the beginning of the year, making it an attractive candidate for institutional investors.  To see the 25 factors in more detail, we turn to Exhibit 4.

Currently, volume is ranked most popular as shown in the Popularity Rank column, which is often typical for institutional investors who buy and sell in large quantities. Valuation factors including EV/Sales, Dividend Yield, EV/EBITDA, and Price/Cash Flow are competing with growth amongst institutional investors.  It could be that investors are looking for companies who exhibit ‘growth at a reasonable price’. Analyst Revisions are also important to ensure there is positive sentiment amongst sell-side analysts.  Finally, leverage as represented by interest coverage is ranked highly as investors want to ensure companies have enough cash flow to service debt obligations.

Exhibit 4: Barrick Gold Smart Holdings Model

Source: Refinitiv Eikon

Alongside each factor, we can see the corresponding value for Barrick Gold as shown in the fourth column alongside the category it falls in (i.e. Value, Growth, Leverage). This page can be sorted by any column to allow for additional flexibility.

The Global Percentile (Screen Pass/Fail Rate) shows how likely the company’s fundamentals are likely to pass the screen of investment managers. The higher the number, the more likely it will pass the screen.

When sorting by the Category column, we see analysts are bullish with high levels of revisions in part due to higher gold prices.  However, Growth has been stellar for Barrick Gold, achieving a 5-year Earnings Per Share (EPS) CAGR of 58.9% while the long-term EPS growth rate is forecasted at 43.1%.  Top-line revenue growth year-over-year is also strong at 20.9%.

With higher gold prices, it is unsurprising to see Barrick Gold score well in Price Momentum. Barrick Gold also has strong interest coverage levels at 5.9x while debt/equity is manageable at 24.5%, with total debt levels significantly declining over the last decade. Profit margins also remain robust with net profit margin at 39.0% and return on assets at 10.3%.

Whether or not gold prices remain at record levels, the StarMine Smart Holdings model allows users to quickly see how a company’s fundamentals are aligned with market preferences. The StarMine Smart Holdings is a unique model within the offering as it is an adaptive model, shifting its ranking criteria as investor preferences change over time.

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