Millions of investors are looking for top-tier companies they can get their hands on right now that can provide significant capital appreciation potential with relatively low volatility. Indeed, owning a range of assets that are non-correlated (or have low correlation to each other) can provide a “smoother” ride higher over time.
And while I’m not one to suggest investors miss out on the historical returns equities can provide, navigating periods of turmoil is important. Gold and other precious metals have provided somewhat of a safe haven for investors, particularly during this most recent bout of tariff-driven volatility. The price of gold has soared this year to a fresh high, making all gold bugs out there happy.
Barrick Gold (TSX:ABX) has been one of the biggest winners in the Canadian gold mining space, having surged more than 10% on a year-to-date basis. That’s a lot better than the stock market as a whole.
Unfortunately, this stock is also down roughly 13% over the past month, suggesting that investors aren’t sold on this company’s upside moving forward.
Here’s why I think that’s the wrong take.
Barrick’s fundamentals remain strong
As a top global player in the gold mining sector, Barrick Gold obviously stands to benefit from the surge in gold prices we’ve seen over the past year. There are many reasons for this surge in the price of gold. But for gold miners like Barrick, who typically carry dollar-denominated debt on their balance sheet (with revenues tied to the price of gold), as gold becomes more valuable, so too does the company’s cash flow outlook — and therefore, its share price, at least theoretically.
This past quarter, Barrick showed investors exactly what a higher gold price can mean for its balance sheet. The company posted an impressive 61% increase in earnings, which was driven by a 40% year-over-year increase in the price of gold.
As Barrick continues to see free cash flow surge (up to $375 million this past quarter alone), the company can continue to reduce its debt load and improve its already solid balance sheet. This past quarter, the company was able to push through a 5% reduction in its net debt and pay out a $0.10 per share dividend to investors (along with $143 million in share buybacks).
So long as this company’s fundamentals continue to move in the right direction, Barrick Gold is a company I think investors would be remiss to ignore right now.
Bottom line
Over the long term, I think most investors can benefit from some exposure to precious metals. Gold and gold miners, by extension, are great options for investors looking for a less correlated portfolio (and smoother long-term returns).
My expectation is that Barrick Gold should be able to continue to provide significant capital appreciation over time, in addition to a strong capital return profile. In this market, I think that’s what investors may want to value more than growth, given where the valuation stands right now.
