Why I Am Bullish on Barrick Gold Stock

Barrick Gold Stock

Barrick Gold Stock (TSX:ABX)(NYSE:GOLD) has done very well over the last ten years. Even though free cash flow is still a bit lumpy, as it always is in the mining industry, it has gotten much better. The variable quarterly dividend payout has increased significantly, and the company has paid off almost all of its huge debt in the last nine years. Still, the stock price has mostly stayed the same despite these fundamental improvements. For example, the company has improved its world-class asset portfolio, hired one of the best leaders in the industry as CEO, bought back cheap shares, and built up an impressive production pipeline of high-quality gold and copper mines that will produce for at least a decade.

This is even more surprising when you consider that the gold price has increased by 50% over the same period.

Was the price of GOLD stock too high when 2014 began? I think the valuation pendulum has swung too far in the other direction and that Barrick is currently undervalued and set to rise, especially given the macroeconomic fundamentals and trends. In this article, I’ll talk about three reasons why 2023 will be the year of GOLD.

Reason #1: The Price of Gold Is Expected to Go Up in 2023

As 2023 starts, several things are going for gold prices. First, central banks are buying gold, which is a decisive vote of confidence. Central banks bought more gold in 2022 than they had in the 55 years before. This means that people will still want the yellow metal in 2023.

Gold also stands out as a good place for investors to put their money during a recession. CDs have good interest rates right now, but if/when the Federal Reserve changes its mind about interest rates, likely in 2023, gold will be the only safe haven left. This is especially true now that cryptocurrency and Ethereum have lost a lot of their shine after the FTX scandal and other nasty things that happened in the cryptocurrency world in 2022.

Lastly, geopolitical turmoil and tensions continue to drive demand for gold, and a “black swan” event like a nuclear strike by Russia or an invasion of Taiwan by China could push gold prices up by a lot in 2023. China is preparing for this by buying a lot of gold right now. Reuters recently reported that China’s central bank plans to purchase an additional $1.8 billion in gold in the near future.

Reason #2: The Price of Barrick Gold Stock Looks Appealing

Barrick stock should get a multiple expansion in 2023. Based on a return to normalized earnings per share of $1.16 in 2021, Barrick has a forward P/E ratio of 16.4x (which is not too far off, given the factors above). In contrast, the company’s average normalized P/E ratio over the past five years is 22.3x. 

Also, since the company has a lot of free cash flow and gives a lot of it back to shareholders through dividends and buybacks, a 4-5% shareholder capital return yield on current cost is a little to ask for in 2023. Assuming that the 36% multiple expansion happens over the next three years and combining it with the 4-5% capital return yield alone, without taking into account any increase in the gold price or other growth for the company, I see a 15% annualized total returns for Barrick shares over the next three years. This will be much higher if gold prices move up, as I expect.

Reason #3: The Fundamentals of GOLD Have More Room to Go Up

Even though Barrick’s fundamentals have improved over the last ten years, they will improve in 2023.

First, oil prices have decreased significantly since the Russia-Ukraine war started in early 2022. They are lower than they were a year ago, before the war began.

This should make up for one of GOLD’s biggest problems from last year by lowering its operating costs by a lot. This, along with higher gold prices, should lead to bigger profit margins.

Also, Barrick bought back 1% of its outstanding shares in the first nine months of 2022, and it may buy back more in Q4 since it still has a huge $670 million left on its buyback authorization and has the money to do so.

Even though it’s not a huge positive factor, it’s still important and will help boost earnings per share in 2023.

I am also hopeful because production will keep going up in the future. Its Nevada joint venture is running at full speed, with new production from mines like Goldrush, Fourmile, REN, Robertson, and North Leeville and more from Turquoise Ridge. At the same time, its Pueblo Viejo assets are on track for business growth.

What Investors Should Know

I am very optimistic about how much gold will cost in 2023 and even more about how much GOLD stock will cost. Barrick Gold is likely to have huge returns in 2023 because its main product has strong fundamentals, production and operational efficiency could improve in 2023, the number of shares outstanding is going down, and its valuation multiple could grow. These and its high dividend yield make it a good investment. I am very optimistic about the company’s future after 2023.

Featured Image: Megapixl  © Piter2121

Please See Disclaimer

About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.