Gold stock Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) is not the stock to buy when the economy is booming and/or recovering. So as the market soared as it digested the exciting coronavirus vaccine news out of pharmaceutical giant Pfizer on Monday, gold stocks like Barrick got hit hard.
Down 12% in the last few days, is Barrick Gold stock headed even lower? Is it time to abandon the safety of gold stocks, or is this a bargain stock not to be missed?
Barrick Gold is displaying momentum as gold prices remain strong
The price of gold is down 9% since August. This is a reflection of the fact that Pfizer’s coronavirus vaccine has brought some hope and optimism back to the markets. Also, coronavirus fears may have subsided a little as the virus loads eased up during the summer. But is there really justification to say that we don’t need a safe haven anymore?
Longer-term, big problems remain. While we are learning to live with this virus to a certain extent, it remains a huge problem globally. New shutdowns in Europe and a rapidly escalating second wave in North America, especially the U.S., are big problems. The economic toll is mounting.
The price of gold has rallied on a longer-term basis. This reflects the elevated level of uncertainty and the effects of the coronavirus pandemic. And it makes sense. Also, the U.S. dollar has been weakening as America struggles under the weight of a virus out of control and a political storm. As we know, gold is inversely related to the U.S. dollar. As the U.S. dollar rises, gold typically falls, and vice versa.
A strong buying opportunity as dividend growth continues
Barrick’s realized gold price was up 30.5% in its latest quarter, driving a 175% increase in net earnings and a 161% increase in free cash flow to $1.3 billion. The gold boom is officially here. The investment merits are clear.
Once a heavily indebted gold company that struggled to move forward, Barrick’s fortunes are rapidly improving. Cash generated this quarter was used to reduce net debt by 71% to $417 million. Barrick also used its cash generated this quarter to increase the quarterly dividend by 12.5% to nine cents a share, the third dividend increase in the last year. While the annual dividend yield is a mere 1.06%, the upward momentum is clear.
The rise in gold prices comes after the gold industry went through a period of rigorous cost cutting. Persistently low gold prices a few years ago necessitated this. This has translated into significant growth in cash flows for gold companies benefitting from lower costs and higher gold prices. Today, it is payday for gold companies like Barrick Gold. Shareholders of gold stocks are reaping the rewards.
Gold stocks remain the safe haven of choice
The coronavirus vaccine news out of Pfizer is great news. A few things about this news though. First, the vaccine still has a long ways to go before FDA approval. Ongoing testing could reveal some unexpected problems for the vaccine. Second, even if this vaccine is approved, the production and roll out to mass populations will take time.
In the meantime, we are still left struggling with this virus. Its health and economic toll will last far beyond the resolution of the pandemic. And we are not even sure when this resolution will take place. All this to say that gold stocks should and will remain an important safe haven for investor portfolios.
The bottom line
Barrick Gold stock is the gold stock that investors flock to for gold exposure. It is the largest and best-known gold stock that is the safe haven of choice for most investors. In my view, this stock is on an upward trend. Recent weakness has created a buying opportunity. Consider buying it today for safety, for its bargain price, and for its status as a dividend growth stock.
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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 Karen Thomas has no position in any of the stocks mentioned.