Billionaire Jeffrey Vinik’s Favorite Mining Stocks
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Jeffrey Vinik first became famous for his success at Fidelity Investments as the head of the Magellan Fund. After leaving Fidelity, he started a hedge fund; but within five years the fund had been so successful that Vinik returned money to outside investors. When we went through his 13F filing for the third quarter of the year, we noticed a number of mining stocks among his top holdings. Read on for our quick take on the five largest mining positions in his portfolio or see the rest of his stock picks.
The largest single stock holding in Vinik’s portfolio was his 2.3 million shares of Barrick Gold (NYSE: ABX), a global miner of gold as well as copper. As will be the case with any mining stock, Barrick is dependent on commodity prices, and the business hasn’t been doing well recently: Revenue was down 14% last quarter versus a year earlier, which cut net income about in half. However, the stock trades at 10 times trailing earnings and so is arguably a candidate for value status. Platinum Asset Management, managed by billionaire Kerr Neilson, also owned 2.6 million shares of Barrick at the end of September.
Vinik initiated a position in another gold miner, NovaGold Resources (NYSEMKT: NG), during the third quarter, making for two gold miners out of his five favorite companies. Novagold, which is one of the ways that billionaire John Paulson is investing in gold (read about why Paulson likes gold investments), has seen its stock price fall 49% in the last year and the most recent data shows considerable short interest even now. It’s a much smaller company than Barrick, at a market cap of $1.3 billion, and with its financials looking less solid we think that we’d avoid it.
Vinik also liked Cameco Corporation (NYSE: CCJ), buying 3.6 million shares of the $7.7 billion market cap uranium miner and power plant operator between July and September. The uranium market has been fairly cooperative over the last year, bringing the stock up about in line with the market and delivering a large increase last quarter compared to the third quarter of 2011. Revenue, however, was lower and we’d have to investigate that to try to get an idea of how the business will perform going forward. Cameco carries trailing and forward P/Es of 16 and 14, respectively, which would be a good price if the company can deliver modest growth rates on the bottom line.
Global gold miner Kinross Gold (NYSE: KGC) was another new gold stock in the portfolio. Kinross, like Barrick, is priced attractively in terms of analyst consensus for 2013 with a forward P/E of 9. It actually managed to increase its revenue and earnings in its most recent quarter compared to the same period in the previous year, though we wouldn’t be sure that it will continue to do so. Marty Whitman’s Third Avenue Management increased its own stake in Kinross by 30% last quarter. As with Barrick, we don’t particularly like gold but think that the valuation is cheap enough to make it worth a look.
Vinik cut his stake in Agnico-Eagle Mines (NYSE: AEM) in half, but still owned 1 million shares, giving him a position worth over $50 million at the beginning of October. Agnico Eagle mines gold, copper, zinc, and lead. The stock is actually up 44% in the last year, and trades at 21 times forward earnings estimates. The $9.2 billion market cap company was one of First Eagle Investment Management’s ten largest holdings at the end of the quarter. We don’t think that we would be interested in the company until we saw better earnings numbers.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!