4 reasons to buy Barrick gold stocks today
Barrel gold (TSX: ABX) (NYSE: GOLD) has had a rough time for several years, but the gold mining giant has hit the mark and the market may not yet see the stock’s upside potential.
Progress in recovery
Barrick Gold started 2021 with zero net debt. This is quite a turnaround from several years ago, when the company was crushed by US $ 13 billion in debt. Management embarked on an aggressive and ambitious turnaround plan that some analysts believed was unsuccessful. In short, Barrick Gold wanted to go back to its roots as an agile, lean organization focused on generating free cash flow for investors.
Barrick Gold streamlined its organization to cut costs and sold secondary assets. The company cut half of its head office staff and cut the layers of management between Toronto and the mines. A rebound in the price of gold helped the process and Barrick Gold got to the point in 2018 where it was comfortable making an acquisition. The company merged with Randgold Resources to create a company with five of the 10 largest mines on the planet.
Gold is trading at nearly US $ 1,860 an ounce at the time of writing. This is down from the US $ 2,080 it received last summer, but significantly higher from US $ 1,200 in 2018. The rally in gold prices may not yet be. only in its early stages, as the favorable winds remained in place.
The US dollar looks set to fall against a basket of key currencies. The dollar index is currently close to 90 compared to 97 a year ago. It rebounded slightly in the first quarter of 2021 but subsequently resumed the downtrend. As 2021 approaches, some analysts have predicted a 20% decline in the dollar, driven by a strong economic recovery in the United States that would overtake other developed economies. Gold is valued in US dollars and often catches a bid when the dollar slips.
The main story behind the fall in gold from August to March could be the evolution of 10-year Treasury bill yields. The bond market went from overbought to arguably oversold during this period as the 10-year yield fell from 0.5% to 1.75%. Since then, the situation has calmed down and the 10-year rate has returned to around 1.5%.
Bitcoin and other cryptocurrencies have also entered the history of gold. Experts believe the drop in the price of gold from an August 2020 high to less than US $ 1,700 in March was influenced by the rally in digital currencies. The theory is that investors who normally hold gold have moved funds to play the crypto push.
Bitcoin plunged after surpassing US $ 64,000 in April. It has rebounded from recent lows to US $ 40,000 and remains volatile. Institutional investors may decide to return to gold as a hedge in the coming months, as calls for more pain in the crypto market become more common.
Barrick Gold has tripled its dividend over the past three years to reach the current annualized payout of US $ 0.36 per share. The company is also offering investors a special return of capital in the amount of US $ 0.42 per share in 2021. Barrick Gold generates strong free cash flow at existing gold prices, and another large increase in dividends wouldn’t be a surprise until the end of the year.
Barrick Gold is trading at almost $ 28 a share compared to $ 40 last summer. Based on the strong balance sheet and positive outlook for gold, the stock appears undervalued. If gold climbs to US $ 2,000 over the next 12 months, Barrick Gold could easily return to 2020 highs.
The bottom line
Barrick Gold has come a long way in its recovery efforts. If you are looking for a gold miner to increase your exposure in the industry, Barrick Gold deserves to be on your shopping list.
The post 4 Reasons to Buy Barrick Gold Stock Today first appeared on The Motley Fool Canada.
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Foolish contributor Andrew Walker has no position in any of the stocks mentioned.