Historically, gold has been viewed as a store of value and hedge against inflation. The precious metal has delivered inflation-beating returns for long-term investors and outpaced broader markets during periods of economic uncertainty.
Moreover, gold has an inverse relationship with interest rates. So, gold prices should gain pace if interest rates are reduced in the next 12 months.
One low-cost way to gain exposure to gold is by investing in mining companies such as Barrick Gold (TSX: ABX).
Is Barrick Gold stock a good buy right now?
Valued at a market cap of $40 billion, Barrick Gold is among the largest gold mining companies globally. It owns and operates the largest portfolio of Tier 1 gold assets in the world and also has a strategic copper portfolio. Barrick’s gold production in 2022 stood at 4.1 million ounces, while copper production was 440 million pounds.
The gold producer’s consistent reserve replacement and resource growth has allowed it to underpin each operation and project with a planned production profile of more than 10 years. Owing to a long-term production profile, Barrick can generate robust free cash flow and deliver strong returns to shareholders.
Its positive free cash flows indicate Barrick Gold has the flexibility to reinvest in the development of assets as well as in exploration properties, which should result in higher earnings in the future.
Its record as a successful builder of Tier One assets across geographies suggests Barrick also has the ability to execute supply chain logistics and infrastructure development.
With operations in 4 continents and 19 countries, Barrick Gold is well-diversified and expects to produce 6.5 million ounces of gold equivalent annually through 2023.
Barrick Gold stock is reasonably valued
In addition to a wide economic moat, Barrick Gold is also equipped with a strong balance sheet. As mining is a capital-intensive industry, companies in the sector generally have a debt-heavy balance sheet. But Barrick Gold’s positive cash flows and sale of non-core assets have allowed it to reduce debt over the years. It ended Q1 of 2023 with US$4.4 billion in cash and US$4.8 billion in debt.
Due to its solid liquidity position, Barrick Gold has the financial flexibility to pay shareholders a dividend and enhance wealth via buybacks. Barrick Gold pays an annual dividend of $0.53 per share, indicating a forward yield of 2.4%. The company pays investors a base dividend and performance dividend, whereby the latter is based on its cash position.
Barrick Gold reported sales of US$2.6 billion in Q1 of 2023, compared to US$2.9 billion in the year-ago period. Its sales fell year over year due to lower production volumes. Comparatively, capital expenditures rose to US$526 million in Q1 from US$478 million in the year-ago period, which means the mining giant continues to invest in growth projects.
Analysts tracking Barrick Gold stock expect adjusted earnings to rise from $1 per share in 2022 to $1.44 per share in 2024. So, ABX stock is priced at 15.6 times forward earnings, which is very cheap.
Bay Street remains bullish on ABX stock and expects shares to gain 34% in the next 12 months.
