Contrarian Investors: Is Barrick Gold Corp. a Buy for 2018?

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) has underperformed in 2017. Are better days ahead?

| More on:

Contrarian investors are always searching for troubled stocks that could be on the verge of a recovery.

Let’s take a look at Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) to see if it deserves to be in your portfolio.

Gold market

Barrick’s fortunes are primarily tied to the price of gold, which is generally impacted by safe-haven demand and changing interest rates.

Gold has been volatile in the past 12 months, ranging in price from US$1,130 to US$1,350 per ounce, and the trend is likely to continue. At the time of writing, the metal trades at US$1,275.

Fear trade fading

On the safe-haven side, investors often flock to gold when there is a perceived risk to the global financial markets. This could be due to geopolitical conflicts, or regional financial threats.

In recent years, gold traders have shrugged off big events. The Brexit vote hardly moved the needle in the gold market, and terror attacks no longer trigger sharp knee-jerk reactions.

In 2017, gold picked up a bit of momentum when it looked like things were going to overheat with North Korea, but once the media attention shifted to other stories, everyone went back to business.

What about interest rates?

Rising interest rates in the United States tend to be negative for gold, as they increase the opportunity cost of owning the non-yielding metal. In addition, higher rates can push up the value of the U.S. dollar, in which gold is priced, making it more expensive for holders of other currencies, although that hasn’t been the case through most of this year.

The U.S. Federal Reserve raised rates three times in 2017, and the market is currently looking for three more moves next year. This will likely serve as a headwind to gold and the miners.

Cryptocurrency effect

The rise in popularity of cryptocurrencies is also a potential factor for gold’s weakness in recent months. Some market watchers say funds have shifted out of gold into the cryptocurrency market.

Cryptocurrency prices remain extremely volatile, and a significant rout in 2018 could send investors rushing back into gold.

What about Barrick?

Barrick is down about 14% in 2017 and off considerably more than that from the highs it saw in the first part of the year.

The company is making good progress on its turnaround efforts. Barrick expects to get total debt down to US$5 billion by the end of 2018. The debt load stood at close to US$13 billion at the beginning of 2015.

Less than US$100 million in debt is due before 2020.

Production is targeted at 5.3-5.5 million ounces in 2017 at all-in-sustaining costs of US$740-770 per ounce. This makes Barrick the industry’s largest producer with one of the lowest cost structures.

Should you buy?

Volatility will likely continue in the gold market next year, so you have to be a long-term gold bull to own any of the miners today. If you fall in that camp, Barrick might be an interesting contrarian pick while it remains out of favour.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker owns shares of Barrick.

More on Metals and Mining Stocks

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »