Despite 75% Recovery, Barrick Gold Set To Rise Further

by Trefis Team
+39.55%
Upside
21.84
Market
30.48
Trefis
GOLD
Barrick Gold
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Barrick Gold stock (NYSE: GOLD) has seen an impressive rise of close to 75% since late March (vs. over 55% for the S&P 500) to its current level around $30. This is after falling well below $20 in late March, as a rapid increase in the number of Covid-19 cases outside China made investors jittery, and resulted in heightened fears of an imminent global economic downturn. The stock is currently almost 50% above the over $20 level it reached in mid-February. Are the gains warranted or are investors getting ahead of themselves? We largely think that the gains are justified, and believe the stock price is likely to rise further from its current level, as gold prices are expected to remain high and the gradual lifting of lockdowns will lead to higher shipments in the coming quarters. Our conclusion is based on our detailed comparison of Barrick Gold’s stock performance during the current crisis with that during the 2008 recession in our detailed dashboard analysis – Barrick Gold Stock To Gain More.

How Did Barrick Gold Fare During 2008 Downturn?

We see Barrick Gold’s stock declined from levels of more than $40 in October 2007 (the pre-crisis peak) to below $30 in March 2009 (as the markets bottomed out) – implying that the stock lost close to 30% of its value from its approximate pre-crisis peak. In contrast, the S&P fell by more than 50% during the same period.

However, Barrick Gold’s stock recovered strongly post the 2008 crisis to about $40 in early 2010 – rising by almost 45% between March 2009 and January 2010. In comparison, the S&P bounced back by close to 50% over the same period.

In comparison, GOLD’s stock lost 20% of its value between 19th February and 23rd March 2020, and has already recovered more than 70% since then. The S&P in comparison fell by about 35% and rebounded by over 55%.

Can We Expect Further Gains?

A slowdown in economic and industrial activities and expectations of a global recession, following the outbreak of coronavirus this year, has increased gold’s value as a hedging instrument. Global gold prices have increased from about $1,500/ounce at the beginning of 2020 to over $1,960/ounce currently due to higher demand. With rising investment in the yellow metal by major central banks and expectations of interest rates heading south, gold prices already saw a sharp rise in 2019. This trend was further boosted by the current Covid-19 crisis. This was reflected in in the company’s Q2 2020 results where Barrick Gold’s revenue increased 48% y-o-y while net earnings shot up over 80%.

The gradual lifting of lockdowns over recent weeks and easing of global supply bottlenecks is likely to help a large company like Barrick Gold which operates across continents and has a global supply chain. This is projected to boost shipments post the crisis. Though gold prices could drop marginally post-Covid, a subdued economic growth outlook could avoid any significant drop in gold price. Copper prices are likely to rebound once demand starts picking up post-Covid. Higher shipments could offset a slight drop in gold price realization. Barrick Gold is seeing a rise in revenue and margins during the current crisis in 2020 when most industries are adversely affected. Also, with investors expecting continued healthy growth in 2021 due to the Nevada JV and higher production, we believe Barrick Gold’s stock is set to see further upside of about 10% from its current level. According to Trefis, Barrick Gold Valuation works out to $32 per share

For further insight into the gold mining space, see how Barrick Gold’s rivals Newmont and Freeport-McMoRan compare with each other.

What if you’re looking for a more balanced portfolio instead? Here’s a top-quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500, Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.

 

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