Better Buy: Newmont or Barrick Gold Stock?

If you think better days are ahead for gold miners, consider exploring gold stocks Newmont and Barrick Gold.

| More on:
Gold bars

Image source: Getty Images

Gold stocks have generally been weak this year due to a stronger U.S. dollar that has weighed on gold prices. As a result, large-cap gold stocks Newmont (TSX:NGT) and Barrick Gold (TSX:ABX) have declined this year. Year to date, Newmont stock has corrected about 21%, while Barrick Gold stock has dropped roughly 11%. Let’s explore which may be a better buy today.

Past performance may be indicative of future performance

As you can see in the total return chart, gold stocks tend to move in tandem with each other. So, the one that has delivered greater returns may be a better buy. Newmont stock has delivered greater total returns over a multi-year period.

ABX Total Return Level Chart

ABX Total Return Level data by YCharts

When based on only price appreciation in the period, Newmont stock’s climb of about 41% also doubled that of Barrick Gold’s 20%.

Financial position

Newmont’s retained earnings are positive, which is always a good sign. As Investopedia explains, “Retained earnings are the cumulative net earnings or profits of a company after accounting for dividend payments… retained earnings decrease when a company either loses money or pays dividends and increase when new profits are created.” Specifically, the gold stock’s retained earnings were US$2.8 billion at the end of the third quarter (Q3).

Its debt-to-equity ratio is 84%, which is not that different from 82% in the “normalized” year of 2019.

In contrast, Barrick Gold has accumulated a deficit of almost US$6.3 billion. In other words, its retained earnings are in negative territory. However, the company’s capital structure has improved. The debt-to-equity ratio is 59%, down from 68% in 2019. The gold miner also earns an S&P credit rating of BBB+, which should instill confidence in investors.

Recent results

In Q3, Newmont realized an average gold price of US$1,691 per ounce, down 4.9%, while its all-in sustaining costs (AISC) for its gold operations increased by roughly 13% to US$1,271 per ounce. Accordingly, its adjusted EBITDA, a cash flow proxy, declined about 35% to US$850 million. Q3 cash flow from operations fell 59% to US$466 million, resulting in year-to-date free cash flow generation of US$703 million.

In Q3, Barrick Gold’s AISC for its gold operations was US$1,269 per ounce, up 23% year over year. Adjusted EBITDA declined about 31% to US$1,150 million. Its Q3 net cash provided by operating activities fell 28% to US$758 million, resulting in year-to-date free cash flow generation of US$528 million.

The Foolish investor takeaway

Both companies have witnessed a drop in profits lately due to inflationary pressures resulting in higher costs of operation and lower gold prices. It would be smart to limit your portfolio exposure to this sector.

That said, between the two, Barrick Gold stock appears to be a better value. The consensus analyst 12-month price target is US$53.60 for Newmont, which represents 18% near-term upside potential. At US$45.37 per share, its dividend yields 4.8% for additional returns. Barrick’s price target is US$20.40, which implies a 29% near-term upside is possible. At US$15.80 per share, its dividend yields 3.5%.

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 Kay Ng has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Metals and Mining Stocks

Engineers walk through a facility.
Metals and Mining Stocks

Why Cameco Stock Rose 22% in January 2023: Should You Buy Now?

Cameco (TSX:CCO) stock may be up right now, but how long can that last if uranium proves to be a…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

2 Canadian Mining Stocks Worth a Dig in February 2023

These two Canadian mining stocks are among the best options for long-term investors looking to add some defensiveness right now.

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, February 1

The Fed’s interest rate decision and other important economic releases may keep TSX index highly volatile today.

Read more »

stock market
Metals and Mining Stocks

Gold Prices Are Rising: 2 Mining Stocks to Buy Today

Gold mining stocks offer a great way to tap into the resilience of this shiny metal in weak markets, but…

Read more »

A miner down a mine shaft
Metals and Mining Stocks

3 Growth Stocks to Buy With $1,000 Right Now

Each of these growth stocks have climbed over 50% in just six months! And there's still room to grow on…

Read more »

A tractor harvests lentils.
Metals and Mining Stocks

Here’s Why Nutrien Stock Is 1 of my Top Stock Picks This Year

Not all food stocks are equally attractive, and if you are in this for the long haul, it's a good…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Monday, January 30

Corporate earnings and the Fed’s interest rate decision will remain on Canadian investors’ radar this week.

Read more »

Electric car being charged
Tech Stocks

Is Now The Time to Buy EV Stocks?

EV stocks may be down now, but don't count them out. They'll soon be back up again, so now may…

Read more »