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 started a bit rockier as rising inflation has prompted the Fed to raise rates twice so far this year, with more rate increases expected in the months ahead. The ongoing reality of war between Russia and Ukraine, and the geopolitical and economic pressures that come with it have kept investors on edge as well. Altogether, these different elements have pushed all three major indices into legitimate, technical bear market territory.
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.
That means that it is an ignorant investor that doesn’t recognize that broad market risk is high 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. 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 – and the resulting “flight to quality” that often accompanies them – started to give the stock a lift, pushing to a peak at around $26 in April. The stock has dropped back again from that point, but appears to have found a new bottom at around $20.50. 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. It seems ever more clear that the geopolitical questions in the East will not have a quick resolution, 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 $36.3 billion.
Earnings and Sales Growth: Over the last twelve months, earnings decreased by -10.34%, while revenues also dropped by -3.48%. In the last quarter, earnings were -25.7% lower, while revenues declined by -13.8%. The company’s margin profile is a sign of strength, showing a moderated decline compared to the earnings pattern; over the last twelve months, Net Income was 16.22% of Revenues, and declined somewhat to 15.35% in the last quarter.
Free Cash Flow: GOLD’s free cash flow is healthy at about $2.9 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 little over a year ago. The current number translates to a modest Free Cash Flow Yield of 7.98%.
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 a little more than $6.5 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 1.95% 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 two quarters ago. The steady 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 $28.60 per share. That means the stock is significantly undervalued right now, with 40% 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 $26.60 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 upward trend from its December 2021 low at around $17 to its high point in March at around $26; it also provides the baseline for the Fibonacci retracement lines on the right side of the chart. The stock retested that high in April before picking up significant bearish momentum, which has pushed the stock below the 38.2% and 50% retracement lines and to the 61.8% line, where the stock appears to have found new, current support at around $20.50, with immediate resistance at around $22. A push above $22 should find next resistance at around $23, a little above the 61.8% retracement line but inline with pivot activity in that range in February, April, and early this month. A drop below $20.50 could see the stock drop to about $19 before finding next support, with $18.50 possible if bearish momentum accelerates.
Near-term Keys: GOLD’s fundamental strength and value proposition are elements that I think make GOLD a hard stock to ignore – especially under current market conditions. With inflation and war fears expected to remain high, 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 $20.50 could offer an opportunity to short the stock or to work with put options, with an eye on $19 as a practical, very short-term profit target. A bounce off of current support could act as a signal to think about buying the stock outright or to use call options, with an eye on $22 to $23 as a practical profit target range on a bullish trade.