The year is almost over, and gold just keeps on trucking.
This week, the commodity’s price increased by roughly $69, to $4,277, marking a 1.6% gain for the week. This follows an entire year of steady gains and outperformance by the beautiful metal.
What has been driving all of this outperformance?
It’s hard to say with certainty, but it would appear that central bank actions and investor worries have played a part. China and Russia have been furiously stockpiling gold in recent years, and encouraging their citizens to do the same. Simultaneously, investors have been worrying about a tense trade environment and the negative effects it could have on securities. As a result, people have been buying gold at a steady clip.
The factors that are driving gains in gold don’t appear to be abating any time soon. So, it may be a good time to consider adding some gold-related equities to your portfolio. In this article, I’ll share what I think is the most sensible large-cap gold stock you can buy today.
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Barrick Mining
Barrick Mining (TSX:ABX) is a Canadian mining company that primarily invests in gold and copper mines. It is actively producing and selling both gold and copper, so it is not a “junior miner,” but an established operating business.
An established business
One of the biggest things that Barrick Gold has going for it compared to a lot of other TSX gold stocks is an established operating business.
Many TSX gold miners that gain in popularity are junior miners that are not profitable or even generating revenue, yet are hoping for a big gold discovery to turn them into big success stories. The problem with this is, if the company doesn’t strike gold, then the stock can quite literally go to zero. Barrick, with its proven, productive mines, is not at risk of having this happen to it. In fact, the company is already profitable and growing. The following headline metrics from its most recent quarterly report shed light on this fact.
In the third quarter, Barrick delivered:
- 829,000 ounces of gold production.
- $2.4 billion in operating cash flow (CFO), up 82% quarter over quarter, an all-time high.
- $1.5 billion in free cash flow (FCF), up 274% quarter over quarter.
- A 25% dividend hike.
- $1 billion worth of stock repurchases.
This is pretty much a laundry list of all the things investors tend to look for in stocks: high growth, dividends up, substantial buybacks, and all of it supported by real cash flows. It was a great showing. But nevertheless, there is a possibility that any given quarter is merely a fluke. So I looked at Barrick’s long-term averages, based on S&P Global Capital IQ data. What I found was as follows:
- Over the last five years, the company’s revenue has compounded at 3.7% and its earnings at 12%.
- Its free cash flow (FCF) has declined in the same period.
- However, 2020 was a year of particularly high FCF for Barrick; current FCF is up hundreds of percentage points from 2019, 2018, 2022, and 2023 levels.
So, Barrick’s recent good quarterly earnings showing was probably not a fluke, and the company seems to be doing well long term.
A reasonable price
Last but not least, Barrick Gold stock is modestly valued despite all its recent growth. It trades at 22 times earnings, 11 times CFO, and 2.5 times book value. These metrics are about typical for the TSX, yet Barrick is actually growing faster than most companies. So, ABX is cheap if gold keeps going up.
Conclusion: Barrick isn’t going anywhere
Taking into account Barrick Gold’s long-term performance and recent quarterly release, it appears to be a decent gold buy. I can’t predict the price of gold, but I know that Barrick will keep doing well if gold trades sideways or declines by non-disastrous percentages. Perhaps a small position is warranted.
