Barrick Gold (TSX:ABX): Is the Recent Weakness an Opportunity?

Barrick Gold (TSX:ABX)(NYSE:GOLD) stock has fallen almost 20% from its record highs in April. Is it an opportunity for long-term investors?

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Barrick Gold (TSX:ABX) stock has been leading the gold miners’ rally for the last few months. However, the stock has recently fallen almost 20% from its April highs. So, what should investors do amid the recent fall while the outlook for the yellow metal remains rosy?

Barrick Gold: What should investors do?

Barrick Gold has managed to double its net income in the last 12 months. And it’s not just Barrick — almost all gold miners reported superior earnings growth in the last few quarters. Higher realized gold prices played out well, which uplifted their financial performance in this period.

Barrick Gold aims to produce 4.6 to five million ounces of gold this year. The company has lowered its production target for the year due to its output sharing issues with Papua New Guinea government.

However, the gold miner is expected to continue its superior earnings growth for the next few quarters. Analysts expect its 2020 net income to increase by a handsome 76% compared to 2019.

Notably, higher realized gold prices might continue to boost gold miners’ earnings, at least for the next few quarters. Slowing global economic growth driven by the COVID-19 and lower interest rates have created a super-supportive combination for gold.

Also, the U.S. presidential elections in November might further increase volatility in global equities, which will again force investors toward gold. Thus, gold’s direct correlation with mining company stocks and its impact on their bottom lines might continue to push the stocks higher.

What makes it stand tall in the industry?

Interestingly, Barrick Gold differentiates itself from peers on many fronts. Its unparalleled scale and an extensive portfolio of mines make it a strong name in the industry.

Moreover, Barrick Gold has been making notable improvements on its balance sheet from the last few quarters. It has sold some non-core assets in the recent past and trimmed down the debt.

At the end of the first quarter of 2020, the company had total debt of $5.1 billion, down from $7.8 billion in 2016.

Barrick Gold stock currently trades at a dividend yield of 1.2%, lower than broader markets average. If one had invested $10,000 in ABX five years back, they would have accumulated $26,300 today.

The Foolish takeaway

Investors should note that Barrick Gold stock has surged more than 30% so far this year, beating gold miner stocks at large. Notably, the traditional safe haven– gold has soared only 15% in the same period.

The stock is currently trading at a forward price-to-earnings multiple of 40 times. Despite its recent correction since record highs, the stock looks stretched compared to peers as well as to its average historical valuation.

While that might limit its upside movement from here, high-risk investors will likely continue to enter Barrick Gold because of its superior earnings growth potential.

Barrick Gold continues to look strong fundamentally because of its operational efficiency and a solid balance sheet. The outlook for gold remains rosy, which might keep gold miners’ stocks going.

However, the significant relative outperformance of Barrick Gold might limit its upside potential in short to intermediate term.

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 Vineet Kulkarni has no position in any of the stocks mentioned.

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