Barrick gold stock: time to buy?
Written by Andrew Walker at The Motley Fool Canada
Barrick Gold (TSX:ABX)(NYSE: GOLD) underperformed the broader market in 2021, despite strong results. Bargain hunters started buying the stock in 2022, driving the stock price up more than 20% so far this year. Investors who missed the rebound wonder if more gains are on the way.
Geopolitical tensions are driving new demand for gold. Russia’s decision to move its military forces to Ukraine has led to a spike in the price of gold. As of this writing, the precious metal is trading above US$1,950 per ounce. This is up from US$1,800 in early February. The 2020 high was around US$2,080. It is possible that the price of gold will rise above this level in the coming weeks or months.
Uncertainty surrounding the situation in Ukraine will keep global markets on edge for some time, which could prolong gold’s rally.
Gold is widely considered a good hedge against inflation. Prices are rising worldwide due to supply chain issues and soaring commodity prices. The latest report indicates that inflation in the United States is now at 7.5%. In Canada, the average cost of the CPI’s basket of goods and services increased by more than 5% year over year.
The extensive sanctions imposed on Russia are likely to drive up inflation. Brent oil is now above US$100 a barrel for the first time since 2014. Russia is also a major producer of potash and natural gas, in addition to being a heavyweight in the oil market.
Cryptocurrencies are losing their appeal as an alternative to gold. This trend could accelerate as the price of bitcoin and other digital currencies remains highly volatile. There is a theory that significant funds have moved from gold to Bitcoin over the past two years. The reversal could drive gold even higher.
Benefits of Barrick Gold
Barrick Gold reported strong fourth quarter and full year 2021 results. The company has a positive outlook for 2022 and has increased the dividend by 11%. Barrick Gold also intends to repurchase up to US$1 billion of shares under the new share buyback program.
At the current price of gold, Barrick Gold has the potential to be a free cash flow machine. If gold maintains its recent gains or rises, it wouldn’t be surprising to see Barrick Gold announce another capital return special. In 2021, Barrick Gold offered investors an additional US$0.42 per share.
The stock is trading close to $30 a share on the TSX at the time of writing. That’s up from $23 in early January, but still well off the $40 mark hit during gold’s 2020 rally. Given the current tailwinds for the gold market, it wouldn’t be no surprise to see gold extend the gains of 2022.
Barrick Gold’s first quarter 2022 results are expected to be impressive.
The bottom line
Barrick Gold stock still appears undervalued today. A move to $40 is certainly possible if the price of gold continues to rise in the coming months. If you are currently underweight with your exposure to gold, now might be the time to add Barrick Gold stock to your portfolio.
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The Motley Fool owns and recommends Bitcoin. Foolish contributor Andrew Walker has no position on the stocks mentioned.