Gold is picking up some momentum, and investors are wondering which stocks might be attractive right now.
Let’s take a look at Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) to see if it deserves to be in your portfolio.
Barrick just reported strong 2016 results.
The company generated adjusted net earnings of US$818 million, or US$0.70 per share for the year. Operating cash flow was US$2.64 billion, and Barrick churned out US$1.51 billion in free cash flow.
Gold production came in at 5.52 million ounces, near the top of guidance, at all-in sustaining costs (AISC) of US$730 per ounce.
Barrick has made good progress on its turnaround efforts and reduced its debt load by an additional US$2 billion in 2016. That’s after a US$3 billion reduction the previous year.
Looking forward, the good news is set to continue.
Barrick plans to lower debt by an additional US$2.9 billion by the end of 2018 with half of the payments targeted for 2017.
Production guidance for this year is 5.6-5.9 million ounces of gold at AISC of US$720-770 per ounce.
Improved free cash flow is starting to head back into the hands of investors. Barrick just raise the quarterly dividend by 50% to $0.03 per share.
Gold has picked up a tailwind since mid-December, and while the market could easily reverse course, there are a few reasons investors are feeling bullish.
President Trump’s aggressiveness towards key trading partners is nudging some money into safe-haven assets.
At the same time, investors are keeping a close eye on developments in Europe.
The Brexit might turn out to be a bit uglier than expected, Italy’s banks are a mess, and France could be on the verge of electing a president who wants to drop the euro and hold a referendum on E.U. membership.
Could gold fall?
The U.S. Federal Reserve intends to raise interest rates three times in 2017. This should provide a headwind for the gold market and could overpower any safe-haven demand triggered by geo-political events.
Should you buy Barrick?
Barrick is now a low-cost producer with industry-leading output and a much healthier balance sheet. The business is generating ample free cash flow at current gold prices and is positioned to benefit from any upward trend in the market.
I wouldn’t back up the truck given the recent gains and the Fed headwinds, but if you are a long-term gold bull, Barrick should probably be on your buy list.
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Fool contributor Andrew Walker owns shares of Barrick Gold.