It’s always interesting to watch the way market momentum and investor attention shifts over time. Societal and geopolitical concerns are just two elements that have shifted the tide of economic fortune over the last couple of years.
Interest rate fears stoked by inflation, plus the threat of war are just a couple of things that history has proven make up a pretty toxic mix for the stock market. Following the COVID-driven pressures of 2020 and 2021, along with Russia’s unprovoked war in Ukraine this year has created exactly the turbulence that has driven market momentum in 2022. It’s an ignorant investor that doesn’t recognize that broad market risk remains high right now, even as the broad market indices have rebounded from their yearly lows over the past month or so. I think that means that including defensively positioned stocks in your investing portfolio continues to be a smart thing to do.
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 past year of market activity saw the stock peak in April at around $26, and then fall to into a downward trend that didn’t find bottom until earlier this month at around $13. That movement might defy the notion of using the stock as a way to get defensive when uncertainty is high, but another part of the value of a defensive-oriented strategy is to think about the company itself and the long-term opportunity it might offer.
Looking beyond the commodity and its value as a defensively-positioned, inflation-hedging asset, this is also a company with a very strong balance sheet, good Free Cash Flow, and an attractive value proposition. With geopolitical questions about Russia and its place in the global community not likely to see a quick resolution, and with a Fed that remains hawkish when it comes to monetary policy, 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 $28 billion.
Earnings and Sales Growth: Over the last twelve months, earnings decreased by about -46%, while revenues also dropped by -10.6%. In the last quarter, earnings were also -46% lower, while revenues declined by -11.6%. The company’s margin profile healthy, but is also showing signs of deterioration; over the last twelve months, Net Income was 16.39% of Revenues, and declined to 9.54% in the last quarter.
Free Cash Flow: GOLD’s free cash flow is healthy at about $1.33 billion over the last year. That marks a decline from $1.8 billion in the last quarter and about $2 billion a year ago. The current number translates to a modest Free Cash Flow Yield of 4.73%.
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 a year ago to almost $5.2 billion in the last quarter. Long-term debt currently stands at $5.08 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 2.5% 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 in mid-2021. 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 $19 per share. That means the stock is undervalued right now, with 19% upside from its current price.
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 its February high at around $26 to its low this month at around $13; it also provides the baseline for the Fibonacci retracement lines on the right side of the chart. From that low, the stock rallied to the top of its consolidation range to hit immediate resistance at around $16.50, then drifted back a bit last week. Current support is around $15.50, with the stock right in between support and resistance right now. A push above $16.50 should have near-term upside to about $18, where the 38.2% retracement line sits, while a drop below $15.50 could see the stock drop to about $14 before finding next support.
Near-term Keys: GOLD’s overall fundamental strength and value proposition are elements that I think make GOLD a good stock to watch – especially under current market conditions. With inflation and geopolitical tensions 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 $15.50 could offer an opportunity to short the stock or to work with put options, with an eye on $14 as a practical, very short-term profit target. A push above immediate resistance at $16.50 could act as a signal to think about buying the stock outright or to use call options, with an eye on $18 as a practical profit target range on a bullish trade.