After surging to an all-time high of nearly $2,100 earlier this month, the gold price has plunged over the past week. I think this volatility exposes the yellow metal’s essential floor is an investment. Its price is determined by supply and demand. As such, I’d avoid gold and buy Warren Buffett-type stocks instead.
Buffett-style stocks Buffett has made a considerable fortune for himself and his investors by concentrating on a small selection of companies. He likes to buy high-quality businesses with strong balance sheets and competitive advantages.
Throughout his career, the billionaire investor has also avoided the gold price. He believed it didn’t offer enough profit potential compared to equities. I think this view makes a lot of sense. Over the past few decades, stocks have produced significantly better returns than the yellow metal.
Indeed, some companies have outperformed the gold price by more than 10 times since 1990. That’s why I’d buy Buffett-type stocks over gold. Today, many of these companies are trading at low prices after the recent stock market crash.
Alternative to the gold price One of the best Buffett-style stocks to buy today maybe consumer goods giant Unilever (LON:ULVR). I think the investor would be interested in buying this stock for his own portfolio. Indeed, several years ago, its US-peer Kraft Heinz (NASDAQ:KHC), which is backed by Buffett, tried to buy the group. The deal ultimately failed, but I think it was a big vote of confidence in Unilever.
Other companies with similar qualities that Buffett might buy over the gold price include soft drinks manufacturer AG Barr. This business owns a defensive stable of brands with a large customer base. It’s also produced impressive returns for investors over the past few decades through a combination of sensible capital investments and dividends.
Pharmaceutical businesses such as GlaxoSmithKline and AstraZeneca may also be better investments than the gold price over the long term. The demand for pharmaceutical products and treatments is only growing. As the world’s population continues to expand, I think this trend is almost certain to continue. This should help these businesses improve their top and bottom lines. By comparison, there’s no guarantee the gold price will continue to rise at the same rate.
If you’re not interested in picking individual stocks, buying an index tracker fund could be a good alternative. As noted above, stocks have outperformed the gold price over the past few decades. The best way to replicate this performance could be to buy the market as a whole. Buffett has even advocated this approach himself.
The bottom line Overall, I think the recent gold price crash marks a good time for investors to dump gold and buy Buffett-style stocks instead. Doing so may help you grow your financial nest egg at a faster rate in the long run.
The post The gold price plunges! I’d buy these Warren Buffett-type stocks instead appeared first on The Motley Fool UK.
Rupert Hargreaves owns shares in Unilever. The Motley Fool UK has recommended AG Barr, GlaxoSmithKline, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020