Barrick, Goldcorp, or Newmont – Who’s the Cheapest?

Gold companies look cheap. Or do they?

| More on:
The Motley Fool

I don’t know about you, but I can’t get gold stocks out of my head these days.  Even though the commodity has been relatively stable, gold mining stocks just keep going lower.  This week, it was a Goldman Sachs “short” recommendation for the commodity that sent the space reeling.  Who knows what dire news next week may bring.

This is why investing is hard!

If one compares the multiples at which the company’s in the gold space currently trade to historical levels, this appears to be the opportunity of a lifetime.  The table below compares the current price/book multiples for Barrick (TSX:ABX,NYSE:ABX), Newmont (NYSE:NEM) and Goldcorp (TSX:G,NYSE:GG) to their 10-year averages.  The difference is astonishing and enough to make any value oriented investor sit up and take note.


Current P/B

10 Yr Avg P/B

Barrick Gold









Source:  Capital IQ

The stocks appear cheap.  Real cheap!  But, they’ve appeared cheap for some time based on multiple analysis.

To get a better feel for what these three companies are worth we’re going to take an alternate approach.  Warning….math ahead.

What’s priced in?

We know the current book value for each and we also know what the market is expecting for 2013 earnings.  The table below combines these inputs and conveys an expected return on equity (ROE) for each (earnings/book value = ROE).  We can then compare this expected number to the average ROE that each company has achieved over the past 10 years.  This allows us to gauge the market’s expectations.


Expected ROE

10 Yr. Avg ROE

Barrick Gold









Source:  Capital IQ

Even though the multiples have washed out, market expectations for two of the three haven’t.  For instance, the market is pricing Barrick as though it’s going to achieve an ROE of 17% this year.  This is far above the 10 year average of 9.5%.  And, I dropped the company’s 2009 ROE of -28% from the calculation.  If included, the average is 5.8%.

Stay with me

Last table.  Conveyed below are some rough earnings estimates based on current book values and the average ROEs from above (book value*ROE = earnings).  Assuming multiple expansion does not occur, the current trailing P/E multiple has been applied to each estimate to arrive at a value.


Est. EPS



Current Price

Barrick Gold















Source:  Capital IQ

Based on this analysis, only Goldcorp should be considered “cheap”.

The Foolish Bottom Line

These are back-of-the-envelope type calculations but serve as a quick and relatively easy way to assess what’s priced in and what each company may be worth.  With this bit of knowledge in hand, I’m at least going to sleep a little better knowing I shouldn’t be re-mortgaging the house to buy Barrick or Newmont!  Goldcorp though – hmmmmm…….

The S&P/TSX Composite Index is loaded with resource and financial stocks.  Because of this, investors that rely on Canadian Index funds or ETFs severely lack diversification in their portfolio, opening them to undue risks.  We have created a special report that outlines an easy to implement strategy and 5 Canadian stocks that reduce the risks involved with passively investing in the Canadian market.  Click here now to receive “Buy These 5 Companies Instead of Following a Flawed Piece of Advice” – FREE!

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler is short $32 July 2013 put options on Goldcorp and owns shares outright in Barrick Gold.  The Motley Fool has no positions in the stocks mentioned above.

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.

More on Investing

Arrowings ascending on a chalkboard

I Think They Can: 3 Stocks That Can Keep Chugging Higher

CN Rail (TSX:CNR) and other transport plays have what it takes to chug even higher from here!

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Better Buy: Dollarama Stock or Alimentation Couche-Tard?

Take a closer look at these two defensive retail stocks to determine which might be a better holding to protect…

Read more »

Growing plant shoots on coins
Dividend Stocks

TFSA Dividend Stocks: How You Can Earn $400 Per Month of Growing Passive Income

Here's how you can buy top Canadian dividend stocks in your TFSA to build a rapidly and consistently growing passive-income…

Read more »

top TSX stocks to buy
Dividend Stocks

GICs vs. Dividend Stocks: Where to Invest for Passive Income in 2024?

Income-seeking investors can consider holding instruments such as GICs and dividend stocks to create a recurring revenue stream.

Read more »

Dollar symbol and Canadian flag on keyboard

If You Don’t Own This Canadian Stalwart Stock, You’re Missing Some Serious Stability

Here's why Royal Bank of Canada (TSX:RY) remains a stalwart long-term investors have done well to make a core holding.

Read more »

Payday ringed on a calendar
Dividend Stocks

Got $10,000 to Invest? How to Turn it Into Monthly Income

Canadians can produce recurring monthly income streams from a $10,000 investment in two high-yield real estate stocks.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

How to Build a Bulletproof Dividend Portfolio Starting With Just $10,000

Want to earn a growing stream of dividend income? Here's how to invest $10,000 for a great combination of income…

Read more »

Wireless technology
Tech Stocks

Got $5,000? 2 Tech Stocks to Buy and Hold for the Long Term

Here are the best tech stocks to buy, with one offering long-term growth and the other offering strong business as…

Read more »