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
domestictrade 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 stockgains .
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 $19.5 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 pastyear , withshares down
But in the meantime, Barrick'searnings have held strong,
withanalysts 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 eight
timesforward earnings , a sharp discount to its 10-year average
of 19 and its peer average of 19.
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 raregain against its peers, with shares up roughly 15% in
the past few months.
But in spite of these gains, shares till lookundervalued ,
trading at 22 times forward earnings, a discount to the 10-year
average of 25 and its peer group average of 44.
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 ever seen.
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