Ron Paul is alot like licorice; not everyone likes him, but the
ones who do really like him.
The former Texas congressman built his reputation and loyal
following by taking strong positions on a number of
The first is his desire toaudit and eliminate the Federal
Reserve. Paul is a free-market capitalist and doesn't believe a
centrally controlled, non-elected entity should have the ability to
dictate interest rates and change the trajectory of theeconomy
Paul has also expressed deep concerns about the U.S. dollar,
which is not backed by any physicalasset , and has been steadily
devaluing against other currencies since 2001 under growing
domestic trade deficits.
Finally, Paul is also worried about the possibility of
massiveinflation . Although the U.S. Bureau of Labor statistics'
Consumer PriceIndex has yet to show any serious signals of
inflation, with central banks around the world fully committed to
monetary stimulation, thedevaluation of fiatcurrency is a very real
consideration for many investors.
But unlike many politicians simply tickling populist fancy,
after taking a look at Paul's portfolio, it's obvious the manputs
hismoney where his mouth is.
The typical congressional portfolio might have 10% incash , 10%
inbonds , 20% inreal estate and 60% instocks orstock funds ,
according to theWall Street Journal.
But Paul has taken a radically different approach.
His 21% allocation to real estate looks pretty normal. So does
his 14% allocation in cash. But where he parts ways with his
congressional brethren is the remaining 64% of his portfolio, which
is invested in gold- and silver-mining stocks. Adding to
hiscontrarian style, his 1% allocation to stocks funds are invested
in "short" funds, a bet against future stock gains.
Here is a list of 15 gold- and silver-mining stocks that Paul
owns in descending order from largest to smallestmarket
From the group, I have chosen to highlight
Barrick Gold Corp. (NYSE: ABX)
because of its historically low valuation and
Silver Wheaton (NYSE: SLW)
because of its low valuation and uniquebusiness model .
Barrick Gold Corp. (
Barrick Gold is the largest gold miner in the world, with amarket
cap of $34 billion and owning four of the world's 10 largest gold
mines. Much like other gold and mining stocks, Barrick has been
under pressure during the past year, withshares down 24%.
But in the meantime, Barrick'searnings have held strong, with
analysts looking for earnings of $3.89 a share in 2012 and $4.90 a
share in 2013, abullish 26% growth projection. The downtrend in the
face of strong earnings has pushed Barrick deep into value
territory. The stock is trading at just seven timesforward earnings
, a sharp discount to its 10-year average of 19 and its peer
average of 12.
Silver Wheaton (
Silver Wheaton has a different business model from other miners in
that it is technically a "silver streaming" company. This means
Silver Wheaton purchases the by-product silver production of a mine
that it does not own or operate, allowing the owner/operator of the
mine to receive an upfront payment and focus on its target metal
(usually gold). This creates a mutually-beneficial relationship
between the companies involved, because it gives Silver Wheaton
theoption to purchase silver at predetermined prices, while the
owner/operator of the mines are able tomonetize the value of its
future, non-core silver production. This unique business model has
lifted Silver Wheaton to a rare gain against its peers, with shares
up 17% in the past year.
But in spite of these gains, shares till lookundervalued ,
trading at 16 times forward earnings, a discount to the 10-year
average of 25 and its peer group average of 22.
Risks to Consider:
Most gold-mining stocks have sharply underperformed gold prices
in the past two years, driving big losses for investors choosing to
invest in gold miners as opposed to bullion orspot prices through
exchange-traded funds like
SPDR Gold Shares (
PowerShares DB Gold Double Long (
Action to Take -->
If you are concernedthe Fed 's recent actions, weakness in the
dollar and inflation, then it's time to take a page from Ron Paul's
portfolio and consider gold and silver miners. And while I wouldn't
recommend the same allocation as Paul has, I do like Barrick and
Silver Wheaton for most portfolios.
The former Texas congressman is considered a political renegade,
fueling what some analystscall the craziest portfolio they have
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