It’s always interesting to watch the way market sentiment and investor attention shifts over time. COVID and the continuing pandemic has naturally dominated the news cycle since it arrived in the United States two years ago. Corporate America’s ability to pivot quickly and adapt rapidly to keep business going is one of the reasons that the market rebounded strongly from its initial drop to bear market levels in March of 2020 to soar well past pre-pandemic highs through most of 2021. 2022 has started a bit rockier as rising inflation has prompted the Fed to plan the first of several rate increases for this year as soon as next month. More recently, the threat of war between Russia and Ukraine put investors on edge starting a couple of weeks ago, and have pushed the broad market back to revisit correction-level territory that followed the major indices’ most recent peak in late December. Thursday dawned in the U.S. with the news that Russia had officially invaded Ukraine, which means that the markets are likely to keep pushing bearish momentum throughout this week.
Interest rate fears stoked by inflation, plus the threat of war are just a couple of things that history has shown to make up a pretty toxic mix for the stock market. Mind you, I am not an alarmist, nor am I calling for a new bear market. Even so, it is an ignorant investor that doesn’t recognize that broad market risk is increasing right now, with additional signs that there could be more pain ahead. That kind of momentum is something that makes most stocks seem radioactive, but even under such difficult conditions, there are assets that have proven to be resilient.
One of the ways that a lot of people like to get defensive – to find useful “safe haven” assets – is to work with precious metals like gold and silver as way to diversity their portfolio. Working with the commodities themselves can be a good way to directly hedge against broad market risk. If you don’t want to work directly with the commodity itself, another alternative is to invest in the companies that mine, process, and produce it.
Barrick Gold Corp (GOLD) is one of the largest gold miners in the world, with operations in Canada, the United States, Central and South America, and Australia. The initial surge in the pandemic in 2020 saw the stock make a big move, from a low around $12.50 to a 52-week high at around $31 in August 2020. From that point the stock dropped back, apparently based on the expectation that economic activity would continue to improve, and that the health crisis may have seen its worst. The stock dropped all the way to a low point at around $18.50 in March of 2021 before starting a new upward trend that peaked in May above $25. From that point, the stock dropped back again before find a new low at around $17 in late September and revisiting it in December. From that point, the inflationary concerns I already mentioned started to give the stock a lift, pushing up a little below $20 before Russia-Ukraine headlines started dominating news media. That has given both the commodity itself as well as the stock a new surge of bullish momentum, peaking late last week at around $23.51, and appearing to establish a new, higher support base this week. Looking beyond the commodity and its value as a defensively-positioned asset, this is also a company with a very strong balance sheet, good Free Cash Flow, and an attractive value proposition. I doubt that the geopolitical questions in East will be resolved quickly, and I think that means that GOLD is a company that should continue to act as a good, defensively positioned proxy for the precious metal – and is something that you might want to consider as a smart way to diversify your portfolio.
Fundamental and Value Profile
Barrick Gold Corp is a gold mining company. The Company is principally engaged in the production and sale of gold and copper, as well as related activities, such as exploration and mine development. The Company’s segments, include Barrick Nevada, Golden Sunlight, Hemlo, Jabal Sayid, Kalgoorlie, Lagunas Norte, Lumwana, Porgera, Pueblo Viejo, Turquoise Ridge, Veladero and Zaldvar. Pueblo Viejo, Lagunas Norte, Veladero and Turquoise Ridge are its individual gold mines. The Company, through its subsidiary Acacia, owns gold mines and exploration properties in Africa. Its Porgera and Kalgoorlie are gold mines. Zaldivar and Lumwana are copper mines. The Pascua-Lama project is located on the border between Chile and Argentina. The Company owns a number of producing gold mines, which are located in Canada, the United States, Peru, Argentina, Australia and the Dominican Republic. GOLD has a current market cap of about $40.6 billion.
Earnings and Sales Growth: Over the last twelve months, earnings growth was flat, at exactly 0%, while revenues increased by a marginal 0.95%. In the last quarter, earnings moved nearly 46% higher, while revenues increased by a little over 17%. The company’s margin profile is a sign of strength, with impressive gains in the last quarter; over the last twelve months, Net Income was 16.87% of Revenues, and increased to 21.93% in the last quarter.
Free Cash Flow: GOLD’s free cash flow is healthy at about $2 billion over the last year, which is an impressive improvement from about $401 million at the beginning of 2019, and $1.17 billion at the end of 2019, but below the $3.7 billion high water mark seen a year ago. The current number translates to a modest Free Cash Flow Yield of 4.88%.
Debt/Equity: The company’s Debt/Equity ratio is .16, reflecting a conservative approach to leverage. Their balance sheet, in fact is a point of strength, since cash and liquid assets have improved from $3.3 billion in December 2019 and $5 billion six months ago to almost $5.3 billion in the last quarter. Long-term debt currently stands at $5.13 billion, versus more than $12.5 billion in January of 2015 and $5.4 billion in the last quarter of 2020.
Dividend: GOLD’s annual divided is $.40 per share and translates to a yield of about 1.76% at the stock’s current price. The dividend has increased steadily since 2019; at the beginning of that year, the dividend was $.16 per share, $.28 per share at the beginning of 2020, and $.36 per share before the latest earnings announcement. The increase is a good sign that the company is focused not only on managing their business but also about finding constructive ways to return value to its shareholders.
Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to work with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term, fair value target around $26.60 per share. That means the stock is undervalued right now, with 17% upside from its current price. It is also worth noting that in the last quarter, this same analysis yielded a fair value target price of around $25 per share.
Technical Profile
Here’s a look at the stock’s latest technical chart.
Current Price Action/Trends and Pivots: The chart above shows the last twelve months of price activity for GOLD. The red diagonal line traces the stock’s downward trend from a May 2021 high at around $25.50 to its December low at around $17; it also provides the baseline for the Fibonacci retracement lines on the right side of the chart. From that low, the stock began to recover gradually as inflation fears increased; in the last couple of weeks, the stock has picked up even more momentum, driving above all three major retracement lines before finding a new peak last week at around $23.50 to mark immediate resistance. The stock has faded a bit from that price, but also appears to be stabilizing not very far from that peak, with current support expected anywhere between $22.50 and $22.25, which is roughly inline with the 61.8% retracement line. A push above $23.50 should give the stock enough momentum to test next resistance at around $24.50 where the 88.6% retracement line sits, and possibly to push to its 52-week high at around $25.50. A drop below $22.25, on the other hand should find next support somewhere between $21.50 and and $21 based primarily on pivot high activity in November of last year and multiple pivots in both directions in June and July.
Near-term Keys: GOLD’s fundamental strength and value proposition are elements that I think makes GOLD a hard stock to ignore – especially under current market conditions. With inflation and war fears driving higher, precious metals should make sense as a smart place to think about diversifying your portfolio. If you prefer to work with short-term trades, a drop below $22.25 could offer an opportunity to short the stock or to work with put options, with an eye on $21 as a practical, very short-term profit target. A push above resistance at $23.50 could act as a signal to think about buying the stock outright or to use call options, with an eye on $24.50 to $25.50 as a practical profit target range on a bullish trade.