Barrick Gold Stock: One of our top picks for January (NYSE: GOLD)
Gold (GLD) is one of the most proven inflation hedges. As you can see from the chart below, during times of high inflation (such as the runaway inflation of the 1970s, the Federal Reserve-fueled housing boom of the 2000s, and post-Great Britain quantitative easing programs financial crisis and post-crash COVID-19 by the Federal Reserve) gold prices soared:
Based on the chart below, every time the real interest rate was negative over the past decade, gold rose significantly each time.
|Year||Real interest rate||Golden performance|
|2010||Clearly positive||Significant increase|
|2011||Clearly negative||Significant increase|
|2012||Clearly negative||Significant increase|
|2013||Clearly positive||Down strongly|
|2014||Slightly positive||Slightly down|
|2015||Clearly positive||Down strongly|
|2019||slightly negative||Significant increase|
|2020||About zero||Significant increase|
source: author’s calculations comparing CPI, US long-term interest rates and gold price movements
As we approach 2022, the environment is about as favorable as it has ever been, as the U.S. Consumer Price Index hit multi-decade highs and interest rates to term remain stuck near historic lows:
While traditional income growth instruments such as triple net rental REITs (NETL) have proven to be one of the best income investments in recent years, triple net rental REITs like Realty Income (O) and STORE Capital (STOR) beating the broader real estate sector (VNQ) by a healthy margin:
… all of that is about to change as inflation picks up and interest rates potentially rise. Traditional income sectors that have been widely seen as substitutes for bonds are at significant risk as income investors need their income to keep pace with rising inflation rates to protect their power. of purchase.
Additionally, heightened geopolitical and macroeconomic uncertainty along with high stock market valuations make the markets dangerous places to invest these days. Take a look at the inflated Buffett indicator:
Accordingly, at High Yield Investor, we work tirelessly to identify the few remaining investments that combine resistance to geopolitical risk and inflation with value and attractive returns. In today’s article, we’ll outline three reasons why we believe Barrick Gold (GOLD) is one of those increasingly rare opportunities.
#1. Best Low Risk Miner
While many investors are turning away from gold miners (GDX) (GDXJ) due to their checkered past, we believe GOLD’s best days are ahead of it.
A big reason for this is simply that GOLD has arguably the highest quality mine portfolio with its collection of “Tier 1” trophy assets and its commitment to operational excellence and improved efficiency.
Additionally, GOLD has further improved its risk-reward by aggressively tackling its heavy leverage over the past decade:
while simultaneously increasing the profitability standards of its projects in order to position itself well to face any decline in the gold price markets.
Last but not least, he has built up a portfolio of proven and probable reserves which gives him an estimate of the mine life of 10 years with very stable production over this period:
This greatly reduces the company’s risk, as it means that even if it experiences poor results from its exploration efforts, it should still have a very stable cash flow profile in the future. Because of these strengths, many of the weaknesses and risks typically associated with miners do not apply here.
#2. Leverage on the price of gold
As already mentioned at the beginning of this article, GOLD took advantage of its exposure to the price of gold. Every time the price of gold increases, the price of GOLD stock should (and almost always does) skyrocket by an even greater amount.
As a result, if you agree with our bullish thesis for the price of gold in the current environment, GOLD should benefit from a powerful tailwind for its intrinsic value.
#3. Barrick Gold – Compelling Valuation
In addition to what is expected to be a strong upward momentum in gold prices in the coming years, GOLD stock price looks very cheap relative to its historical valuation multiple as well as its counterpart. nearest Newmont Corporation (NEM):
|EV/EBITDA||EV/EBITDA (5 years)||PER||P/E (5 years)|
As a result, GOLD shares offer leverage on the upside of gold prices with relatively low downside risk thanks to its risk-free business profile, an essentially net-debt-free balance sheet and a large margin of safety thanks to its at its very cheap valuation.
The icing on the cake, GOLD has paid a dividend yield of 4.2% on the current share price in 2021 and management has indicated that it will soon issue revised dividend guidance for 2022 and beyond. . Given the company’s stated aversion to share buybacks, dividend yields should be similar to – if not better than – 2021 if gold prices hold steady or rise from here. This makes it an excellent inflation-resistant dividend stock in the current environment.
Key takeaway for investors
At High Yield Investor, we target investments that combine resistance to geopolitical risk and inflation with value and attractive returns. Although difficult to find, we have identified several particularly interesting opportunities which we recently published in our latest Top Picks report. We expect these actions to continue to generate our significant outperformance in 2022, similar to what we have seen so far:
|Investment fund||Full return|
|HYI Core Wallet||41.51%|
|Global X Super Dividend ETF (DIV)||31.48%|
|S&P 500 ETF (SPY)||31.51%|
One of our most promising opportunities is in the gold mining sector because – between extremely negative real interest rates and high macroeconomic and geopolitical risk – gold is in what we consider it a very bullish environment which we believe will result in significantly higher prices within a few years.
As a result, the gold mining sector looks very promising in general, and dividend-paying blue chips like GOLD and NEM look particularly attractive compared to more inflation-sensitive traditional income investments like REITs and utilities (XLU).
GOLD gets our approval as a top pick in the space given that it is considerably cheaper than NEM right now and is well positioned to generate significant outperformance over the long term.