Should Value Investors Buy Barrick Gold (GOLD) Stock?

North Carolina-based asset management firm Massif Capital, LLC released its second-quarter investor letter this month – a copy of which is available for download here. The fund is currently being co-managed by Will Thomson and Chip Russell. In their recent letter to investors, Massif Capital announced that the core portfolio was up 18.3% in the second quarter. In the first six months of 2020, the fund has returned 21.9%. You should check out Massif Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Massif Capital highlighted a few stocks and Barrick Gold Corp (NYSE:GOLD) is one of them. Barrick Gold Corp (NYSE:GOLD) is a gold mining company. Year-to-date, Barrick Gold Corp (NYSE:GOLD) stock gained 46.1% and on July 9th it had a closing price of $27.59. Here is what Massif Capital said:

“We entered Barrick Gold at an average price of roughly $10 a share in late 2018, and on the Friday before the firm announced its transformational merger with Randgold. Over the approximately two years that we held the position, not only did the price of gold rally dramatically, but the business itself produced excellent returns under a superior (dare we say the best?) management team in the gold industry. The position returned roughly 125% or 6.6% to the portfolio. Although this is a good return, the position was not without its challenges. The first challenge was sizing. We started the position small, with a roughly 3% portfolio weighting. We intended to add to the position, but we proved behaviorally incapable of adding to a position that had appreciated significantly.

This is a behavioral shortcoming that should not be dismissed simply because we made money and is without question a mark against us as investors. We are aware of it, though, and awareness will hopefully help us avoid making similar mistakes in the future.

The second challenge came at the time of closing out the position. Although we remain highly constructive on gold in general, we believed we needed to exit the position as our valuation for the company was between $20 and $25 per share at gold prices of around $1,500 to $1,600 an ounce. At our exit, the company was trading between 125% and 150% of the low end of our intrinsic value estimate. So although constructive on gold, and thus open to the possibility that a continued run in gold might take the stock higher on sentiment and momentum, we were concerned that the additional price appreciation was exposing us to the risk of needing to find a greater fool to sell the position to, if and when we wanted to exit.

This was one of the more difficult decisions we made this quarter, but hopefully represents a situation we will find ourselves frequently. Our valuation of Barrick was based on a fundamental mine by mine model supported and informed by a qualitative assessment of the companies’ possible paths forward. The model, by its nature, was static and did not consider sentiment or market action, but we, as portfolio managers, must. Barrick had reached its fundamental intrinsic value by our measure and was trading on some combination of momentum and positive sentiment around the price of gold. The positive momentum is undoubtedly something we aim to capture and will always be present in commodity-related businesses, especially when the commodity starts to move. The judgment calls around capturing that momentum are not easy, and the call is more about a qualitative feel for the market being made in the stock then they are about facts and figures.

When confronted with challenges such as this, we often try to create a process that allows us to think through the strengths and weaknesses of any given decision systematically, so we can keep clear what we know, what we don’t, and most importantly, why we are making a decision. Unfortunately, despite some valiant efforts by quantitatively driven investors, the decision about when to sell a winner that has positive momentum remains elusive.”

In Q1 2020, the number of bullish hedge fund positions on Barrick Gold Corp (NYSE:GOLD) stock increased by about 6% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Barrick Gold’s upside potential. Our calculations showed that Barrick Gold Corp (NYSE:GOLD) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.