Should You Buy Barrick Gold Corp. or Goldcorp Inc.?

Gold has a lot of room to run. Should you take advantage with Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) or Goldcorp Inc. (TSX:G)(NYSE:GG)?

| More on:
The Motley Fool

Once again, there is reason to be pessimistic about the U.S. economy. According to new data, non-farm payrolls rose by only 142,000 in September, and the August figure was revised down to 136,000. That’s the slowest rate of job growth in over a year, and is prompting worries that China’s slowdown is affecting the American economy. Stock market futures and the U.S. dollar both declined in response.

The bad news has also dampened the prospects of an interest rate increase, which some believed could come this month.

These developments are a big positive for gold, whose price is still stuck well below US$1,200 per ounce. So, if we see any more bad news, there’s certainly plenty of upside for the gold price.

With that in mind, we take a look at Canada’s two largest gold companies below, Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) and Goldcorp Inc. (TSX:G)(NYSE:GG), and try to determine which one you should buy.

The case for Barrick Gold

Barrick has certainly had its troubles in the past, and its balance sheet is still highly levered. But there’s one major reason to prefer Barrick over Goldcorp: the price.

When including net debt, Barrick’s operations are valued at just under US$20 billion by the market, or roughly US$3,000 per ounce of production. Meanwhile, that figure is nearly US$4,000 for Goldcorp. Furthermore, Barrick is forecasting lower costs for this year than Goldcorp, which means its mines should be more profitable. And we’re not even including Barrick’s copper division in this calculation.

Barrick has also taken some very meaningful steps this year. Costs have been cut, and so has investment spending. The organization is more streamlined. And, most importantly, the company is well on its way to meeting its US$3 billion debt-reduction goal. These actions aren’t enough to make us forget about past misdeeds, but at least it’s a start.

Finally, because Barrick is still so levered, its stock price should be more sensitive to gold prices. So, if you’ve only got so much money to invest, but want to make a big bet on gold prices, this is the way to do so.

The case for Goldcorp

Goldcorp may be more expensive, but there are two big reasons for that. One, its balance sheet is not nearly as dangerous. Two, the company has a far better track record.

The strong balance sheet is particularly crucial. Not only does it make the stock less risky, but it also gives the company more flexibility. So, if it wanted to buy a mine, or buy back shares, or develop a new deposit, it can do whatever is most advantageous. Meanwhile, Barrick is, more or less, boxed into a corner.

The verdict

So, which stock should you buy? Well, that primarily depends on how much money you plan to invest.

If you only want to invest a small amount, but still make a reasonably sized bet on gold, Barrick is certainly the answer. On the other hand, if you want to devote a significant portion of your portfolio to gold (which I would not recommend), then you should minimize your risk with Goldcorp.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »