Barrick Gold Corp. (TSX:ABX)(NYSE:GOLD) has had an incredible run this year. In the midst of chaos, the gold miner has seen its valuation surge 51% year to date. Now it’s worth a jaw-dropping $64.5 billion. That’s higher than it’s been in eight years.
While it’s easy to assume the stock is running out of steam, there are plenty of reasons for Barrick Gold to surge much higher before the year ends. Here are my top three reasons why Barrick Gold stock could double before Christmas.
Barrick Gold stock valuation
Objectively speaking, Barrick Gold stock is undervalued by most conventional measures. The stock trades at just 11 times earnings. Meanwhile, the rest of the stock market trades at a P/E ratio of 22. In other words, Barrick Gold is undervalued by half!
But that’s not all. The stock also trades at four times sales and twice book value per share. That’s a bargain for a company that’s mining one of the most precious metals on the planet — let alone the fact that this precious metal is likely to appreciate by the end of the year.
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Flight to safety
Gold is considered the ultimate safe haven. Investors tend to flock to gold when markets become unpredictable and the economy nosedives. That’s what might be on the horizon.
For now, government policies have delayed Armageddon. In Canada, programs such as the Canada Emergency Relief Benefit (CERB) have helped ordinary citizens pay their bills. Meanwhile, banks have been pushed to defer mortgage and interest payments. These programs will eventually end, however.
When the support programs end, the economy will start to reflect the pain and damage that this crisis has brought. That could push investors to gold investments and push Barrick Gold stock much higher.
Those expensive relief packages I mentioned above? Well, those have all been financed by government borrowing. Across the world, governments have borrowed a historic amount to deal with this crisis.
There’s simply no way the economy and tax collections can pay this amount back. Instead, governments need to print more of their own currency to cause inflation so that the debt dissipates over time. Central banks have been printing money relentlessly. This devalues all currencies and pushes the value of hard assets, like gold, higher.
Barrick Gold stock tends to reflect this upward climb in gold’s market price. As gold becomes more valuable, Barrick’s operations become more profitable and its book value expands.
Savvy investors across the world have been betting on gold as the economy becomes ever more shaky. Even central banks are hoarding the precious metal, as their money printers hit an unprecedented pace. With this in mind, you should probably consider adding some gold exposure to your portfolio.
Gold miner Barrick Gold is probably the best proxy for this commodity. The miner’s stock tends to outperform the market price of gold by a wide margin. I believe there are plenty of catalysts to push this stock much higher by the end of 2020.
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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 Vishesh Raisinghani has no position in any of the stocks mentioned.