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3 Reasons Buffett's Barrick Gold Buy Isn't Such a Crazy Move – Motley Fool

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Warren Buffett has been an investor for a long time, and his company, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), has generated huge returns during his tenure. Yet as the Oracle of Omaha approaches his 90th birthday and Berkshire’s stock has dramatically underperformed the broader market recently, some investors are questioning whether his investment decisions are really still up to snuff.

Late Friday, Berkshire Hathaway released its latest stock portfolio holdings as of June 30. Among them was a completely unexpected company: gold miner Barrick Gold (NYSE:GOLD). Given how Buffett has criticized gold as an investment repeatedly in the past, the investment might seem on its face to contradict everything the Berkshire CEO stands for. Yet investors who question Buffett’s motives here should understand a few reasons why buying a stock with the ticker symbol GOLD isn’t inconsistent with the strategy that got Berkshire where it is today.

1. Gold mining companies are businesses, not commodities

Buffett’s criticism of gold as an investment has always focused on the metal itself. In his 2011 shareholder letter, Buffett talked about how with $9.6 trillion — the value of the 170,000 metric tons in gold worldwide at the time — you could buy every acre of cropland in the U.S. and have enough money left over to buy ExxonMobil 16 times over. You’d even still have $1 trillion in cash left over. The Berkshire CEO noted that the cropland would be immensely productive and ExxonMobil would pay huge dividends, but the block of gold would still be the same block of gold.

Image source: Getty Images.

Barrick Gold is a mining company, and unlike gold itself, mining companies can be productive assets. Indeed, Barrick has been immensely profitable over the past year and a half, capitalizing on the rise in gold prices to earn almost $4 billion in 2019 and another $757 million during the first half of 2020. Barrick has traditionally taken its capital and reinvested some of it into its business, finding growth opportunities to continue. In that vein, Barrick as an investment doesn’t resemble gold bullion at all — and buying Barrick stock isn’t inconsistent with a belief that buying a commodity isn’t a sound investing move.

2. Barrick is value-priced

Buffett has always looked to buy stocks when they were attractively valued, and right now, Barrick fits that bill. The stock trades at less than 11 times its earnings over the past 12 months — even when you consider some of the COVID-19-related challenges that have held back its productivity during much of 2020.

Admittedly, Barrick’s earnings are linked to the price of gold, and that’s been a big part of why its stock price has jumped more than 50% in the first six months of 2020. Yet when you adjust for the asset impairment writedowns that the gold miner has had to take when gold prices fall, Barrick’s operating earnings have been consistently positive even when gold itself was performing poorly.

3. Barrick pays a growing dividend

Buffett also likes stocks that reward shareholders with regular income. Barrick fits the bill, with a modest payout that currently represents a dividend yield of 1.2%.

Moreover, Barrick has shared its success with its shareholders by raising its dividends during good times. Just last week, the company delivered a 14% boost to its quarterly payout, marking the third time in the past four quarters that Barrick has hiked its dividend. The payment is now double what it was just a year ago — and further increases are likely if profits continue to climb.

Buffett and gold could take some getting used to

Sure, it’s always disorienting to see an investor make what seems to be an unusual move, and what Warren Buffett has said about gold in the past seemed to make it unlikely Berkshire would ever own a gold stock. Yet Barrick is one of the giants in the global mining industry, and it’s better positioned than most of its rivals to take advantage of high and rising gold prices as long as they last.

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Commerce Dept. issues order prohibiting WeChat, TikTok dealings – MarketWatch

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The U.S. Commerce Department said Friday it is prohibiting transactions involving Tencent’s
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WeChat and Bytedance’s TikTok. “While the threats posed by WeChat and TikTok are not identical, they are similar. Each collects vast swaths of data from users, including network activity, location data, and browsing and search histories,” the release said. As of Sept. 20, any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates through an online mobile application store in the U.S. is barred, as is any provision of services through the WeChat mobile application for the purpose of transferring funds or processing payments within the U.S. The order makes no mention of the Oracle
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-0.41%

deal with TikTok but said “the President has provided until November 12 for the national security concerns posed by TikTok to be resolved.”

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COVID-19 medical coverage now available even though Canadians advised to avoid international travel – CBC.ca

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Canadians yearning to travel abroad — despite the COVID-19 pandemic — can now get medical insurance to cover costs if they get sick with the coronavirus while travelling. 

In March, when the virus began its global spread and Canada advised against non-essential travel abroad, travel insurance providers stopped selling COVID-19 medical coverage.

Now, several insurance providers have resumed offering the coverage along with their regular travel insurance plans. 

Air Canada, WestJet, Sunwing and travel agency Flight Centre have also joined in, offering free COVID-19 medical coverage to passengers booking certain international flights and vacation packages. 

Travel insurance broker Martin Firestone said he’s surprised by the spate of offers — considering Canada’s advisory against international travel remains intact due to the ongoing pandemic. 

“Your country is now currently under a Level 3 travel advisory, and you’ve got airlines enticing people with free medical coverage,” said Firestone with Travel Secure in Toronto.

“Whether you have coverage or not, you may be in a very precarious position with [available] hospital beds and treatment and the ability to be flown back to Canada.”

Travel insurance broker Martin Firestone said he’s surprised by all the COVID-19 coverage offers for travellers, considering Canada is advising Canadians not to travel abroad. (CBC)

Many companies providing COVID-19 coverage told CBC News they’re responding to consumer demand.

“People are looking to travel,” said Richard Job, Flight Centre’s vice-president of commercial partnership. “They are able to travel if they want to, and we just want to enable that to take place as safely as we can.”

International travellers returning to Canada must self-isolate for 14 days

WATCH | The future of air travel: 

Technology could play a big role as airports and airlines develop new ways to help passengers feel safer. 3:43

Who’s offering coverage?

At least three insurance providers, Medipac, Tour+Med and Blue Cross (in Ontario and Quebec) now offer COVID-19 medical coverage as part of their regular travel insurance plans — or as a top-up. 

Manulife announced this week it will start offering the coverage in October. 

The plans vary. For example, not all providers cover daily expenses if an infected traveller is forced to quarantine abroad.

Each company said it offers medical coverage for all ailments, including COVID-19, for up to $5 million — with the exception of Manulife, which has capped COVID-19 coverage at $200,000.

Manulife declined to comment on the cap. 

Air Canada is offering free COVID-19 medical coverage for select vacation packages and international flights. (Sophia Harris/CBC)

Airline industry offering free coverage

Flight Centre and the airlines are providing free coverage only for COVID-19 illnesses and related expenses, such as accommodation costs while being quarantined. The offers are available for a limited time — ranging from the next seven months to a year. 

Customers booking vacation packages with Flight Centre, Air Canada Vacations and WestJet to select destinations — which exclude the United States — are covered for up to $100,000 in medical bills. WestJet provides the same coverage for international flights, excluding the U.S. 

Sunwing will cover up to $200,000 in COVID-19 medical expenses for passengers booking any of its vacation packages and flights departing on or after Oct. 16. Air Canada (which is separate from Air Canada Vacations) currently provides the same $200,000 coverage for customers purchasing international fights, including to the U.S. 

Although the Canada-U.S. land border is closed to non-essential traffic, Canadians can still fly to the U.S

Firestone questions if $200,000 would be enough to cover a severe case of COVID-19 in the U.S., where medical costs can run high. 

“What if the bill is $500,000?” he said. “Then it becomes your problem.”

Manulife, which is partnering with Air Canada to provide the coverage, declined to comment. 

Air Canada said that passengers wanting extra protection can consider purchasing an extensive travel insurance plan.

What about snowbirds?

Medipac’s main customers are snowbirds heading to the southern U.S. where the COVID-19 infection rate remains high. But the insurance provider said it’s confident it won’t be bombarded with COVID-19 claims, because Medipac’s clientele will likely play it safe. 

“The people that we’re tailoring our product to are going to do what they’ve always done, travel down as a couple, go to their winter residence,” said Medipac spokesperson Christopher Davidge.

“We’re not talking about cramming into a discount airline … and staying at a resort hotel and going to a theme park.”

Snowbird Perry Cohen said he and his wife, Rose, plan to take all necessary precautions when they likely head to their condo this winter in Deerfield Beach, Fla., near Fort Lauderdale. 

“Our community is pretty safe,” said Cohen, who lives in Toronto. “We’re not going to look for large crowds. We’re not running to the bars and the restaurants.”

Even so, Cohen said COVID-19 coverage is a game changer because he and his wife would never consider heading south if they couldn’t purchase it. 

“Why take the risk?” he said. “I like a complete package to know I’m looked after.”

Perry Cohen said he and his wife, Rose, plan to take all necessary precautions when they likely head to their condo this winter in Deerfield Beach, Fla. (Submitted by Perry Cohen)

Cases ‘going up again’ 

But not all eager travellers will be swayed by COVID-19 coverage. 

Avid international traveller Suzanne Chojnacki said she and her husband will stay put for now because they still have many concerns — such as getting stuck abroad if the country they’re visiting suddenly closes its borders.

“The [COVID-19 case] numbers are going up again,” said Chojnacki who lives in Richmond Hill, Ont. “So it’s really not a good time to think about going away — for us.”

Current plans offering travellers COVID-19 coverage don’t include compensation if a customer cancels a trip due to the pandemic. Firestone said that’s because cancellation insurance typically covers unexpected mishaps, not a “known” issue such as the coronavirus.

“It’s just so known, it’s not even funny.”

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Some airlines are now offering free COVID-19 insurance – CTV Toronto

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TORONTO —
Many people don’t feel safe flying amid the COVID-19 pandemic and there are still government warnings in place against non-essential travel.

That is why airlines are now offering free COVID-19 insurance coverage.

But at least one travel expert says that may not be enough of a reason to book a flight anytime soon.

Martin Firestone, the president of Travel Secure, said, “I think insurance companies are looking to get back some lost sales that don’t exist right now and the airlines are of course looking for business.”

Taking a flight is more stressful these days with social distancing, mandatory temperature checks and having to wear a mask for the duration of a flight.

Now as summer comes to an end this is the time of year that many Canadians plan vacations to Mexico, Cuba and other parts of the Caribbean, but due to COVID-19 many travelers may opt to stay home this winter.

In an effort to try filling seats, Air Canada and WestJet are now offering free COVID-19 insurance coverage on some flights of up to $100,000 and Manulife has announced it will roll out a COVID-19 policy in October that will provide up to $200,000 in coverage.

The coverage for someone testing positive for COVID-19 would pay for emergency hospital and medical costs, quarantine accommodations and transportation home via ambulance or air ambulance.

Firestone said people need to realize that if they get a serious case of COVID-19 while travelling in another country and are hospitalized and on a ventilator for weeks, the costs could add up to much more than the coverage currently being offered.

“A claim upward of a half a million dollars is a possibility and the insurance company’s exposure may be capped at $100,000 to $200,000. Who is going to pay the rest? That would be the consumer,” said Firestone.

Firestone said COVID-19 insurance policies come at a time when borders to the U.S. remain closed and the Canadian government continues to warn against non-essential travel.

“I think this is a marketing plan that someone has devised, but a lot of thought has not really gone into it, because it totally goes against the government’s position on travel at this time,” Firestone added.

Many Canadians will be tempted to book vacations to sunny destinations as the cold weather arrives, but Firestone said until travel advisories are lifted and there is a vaccine people may want to stay put.

“The next two or three months I’m suggesting to hold tight and stay home,” Firestone said.

Even though some airlines are including free COVID-19 insurance coverage that is not the same as travel medical insurance. If you book a trip you still need to pay for that yourself in case something else happens while you’re away.

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