The Best Of Both Worlds

Happy Friday folks! We hope markets treated you well as we returned to calmer waters following last week’s rally…let’s hope that marks the end of the great multiple contraction that 2022 has presented thus-far. Regardless, Friday means it’s that time of the week again – so please enjoy this long term pick delivered straight your inbox by yours’ truly, the Coachmen!

“The desire for safety stands against every great and noble enterprise.”
– Tacitus

Market Talk

Despite markets grappling with an OPEC+ meeting yesterday where the cartel decided to increase oil production by 648, 000 barrels per day, indices did not lose much ground gained from last week, however, they also didn’t advance any further. A silver lining here is the VIX’s continued recess from higher levels, settling just under 25 by close today.

Long Investment Reco: Barrick Gold Corp (TSX:$ABX), Don’t Let The Name Fool you!
When it comes to the mining sector, Barrick Gold is a name that stands out from the rest as really being in a league of its own – few have managed to build out a mining outfit at this scale with the attributes of being project, mineral and geographically diversified as they are; focussing on both mine exploration and development, Barrick operates over 15 active sites in 13 countries, mainly producing gold and copper; this senior producer is the best of both worlds for investors looking to gain exposure to both the precious and base metal segments.
Starting with price, all signs point towards right now marking a turnaround for Barrick – we haven’t seen an establishment of new weekly lows like we have now since the start of the year. Moreover, the 200-day moving average has presented as a key area of value for this name and we see that trend continuing from its beginning in mid-May, being confirmed by the MACD’s reversal around the same time as it positions to start an upward oscillation.
Panning to fundamentals, despite a stellar 2022 Q1 report where the firm surprised on both revenue and earnings, $ABX was dragged down with the rest of the market, only now starting to advance towards a more fair value given their heavily discounted forward P/E of just under 16 in a market where it’s normal to trade at 30x earnings! With a trailing 12-month return in the low negative single-digits, we firmly believe this is one of the last times $ABX will be offered at an inexpensive price in the midst of the industry’s triple-digit rally. Barrick’s management guidance did outline that they were going to be on the higher end of their cost projections through the rest of this fiscal year however they have also built up the resource base needed, such as their strategic diesel reserves at a cost basis likely lower than many other producers as energy prices continue to edge higher and higher. Additionally, Barrick’s Q1 report outlined the further development of their Pueblo Viejo plant expansion which is now at 39% (from 26% within Q4). Now is the time to get paid a 2% dividend to wait for heightened FCF as their project pipeline comes to fruition and we return to a reduced oil price environment within 2023.
Chart of the Day – FCF Yield of US Energy Stocks