When it comes to Canadian stocks with serious momentum and wind at their back, it’s hard to look past those red-hot shares of Barrick Mining (TSX: ABX), which have gained close to 114% in the past year. Of course, the incredible rally has not been without its fair share of bumps in the road.
The stock recently dipped more than 26% as part of a March dive. Indeed, the big plunge in the price of gold contributed to the amplified hit to the chin in shares of the big gold miners. Even after a nice relief bounce, it’s still a pretty uneasy time to get into the name, especially since it’s hard to know what the future holds for gold prices, especially as they tumbled in the face of a geopolitical crisis.
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Gold’s coming back with stocks. It might be time to bet big on miners for added torque
Though time will tell if the latest dip into a bear market is the start of a new trend that sees last year’s gains get wiped out, I think that longer-term investors might have reason to treat the latest plunge as nothing more than a correction. In the grander scheme of things, a 26% drop might be more of a “correction on steroids” than anything else, especially considering the magnitude of the 2025 move.
While I’d discourage “playing” the price of any underlying commodity, I think that there are benefits to exposing one’s portfolio to gold. While physical gold is a steadier place to be, I think the miners compensate for the higher level of risk and volatility with significant upside. It’s more of a levered play on gold, so to speak.
And while that operating leverage has worked against gold miners historically, I think that the valuations are depressed enough such that there might be serious value to be had as gold picks up and the miners really start bringing in the cash flows. In a higher gold price climate, the miners are absolute cash cows that can offer huge dividend hikes, special dividends, and buybacks.
Of course, all bets are off when gold tumbles, though. And those who can’t handle a steeper drop on the way down might wish to reconsider buying the latest dip in a name like Barrick.
So, what’s more interesting about Barrick while it’s still down about 15% from its high?
The stock goes for a ridiculously low value multiple, now hovering at 14.8 times trailing price-to-earnings (P/E). That doesn’t price in a lot of optimism, if you ask me. Looking into next year, the shares look even cheaper, now going for just north of 10 times forward P/E.
While I can’t predict gold’s next move in 2025, I think that the bull case could be very rewarding for a name like Barrick, especially as the firm makes moves to shed its relative discount to its peers. The company set a cautious tone for the year, but with a more conservative guide comes greater potential to surprise to the upside.
Combined with big exploration projects, especially in Nevada, I think that the pieces are there to help spark more outperformance versus the peer group. With new leadership and a focus on improving the risk profile, I think Barrick is well on its way to not only trading more in line with its mining peers, but perhaps at a slight discount. Either way, Barrick looks as good as gold here, at least in my view.
Some may view the gold miners as a risky way to play a “safe-haven” asset. But I think they’re a more rewarding play that can pay huge dividends on the way up, making them worthy for those willing to accept the added risks.
