The basic material industry encompasses a lot of what long term investors are looking for. With low multiples and high returns on equity, there is a lot of optimism by committing capital to industries such as oil, gold, or silver. More particularly, the gold industry has a lot to offer during this period when commodity prices are suspect to severe fluctuations. With market leading companies such as Lihir Gold, Newmont Mining, and Compania de Minas Buenaventura SA, there are a lot of options where to go when looking for the cheapest equity. One stock in this industry that I find really interesting is Barrick Gold (ABX). With a strong strategic business plan, competitive fundamentals, and good technical support, this company has a lot to offer for investors.
Looking at the main goal of this company, Barrick, according to Reuters, “engages in the production and sale of gold from underground and open-pit mines, including activities, such as exploration and mine development.” The complete control over its company is a strongpoint of this company. Barrick does not have to depend on other corporations for supplies or production, but it only relies on what nature has to offer. While this scenario is always a risky business, with over twenty years publicly traded, and a share price escalation over 5500% since then, there is reason to believe this company has found the necessary tools to run a successful corporation. In addition, this linear growth pattern can also be attributed to the geographical locations Barrick operates in. According to Reuters, Barrick has work relative to “North America, Australia/Africa, South America and Russia/Central Asia.” This wide coverage of service helps new findings for this company to locate new materials to sell. More importantly, the material it finds and distributes, gold, is always going to be valuable to consumers. Therefore, because of this obvious but forgettable fact, Barrick, barring any intangible interference, should be a reliable company to invest in for the long term.
Now while Barrick does have a strong coverage in terms of geographical and business strategy, because there are so many companies that have similar structures in this industry, the best option to finding the most valuable corporation is to look at the fundaments. Looking at the top line, revenue has seemed to do absolutely fabulous the past fiscal year. Year over year in terms of quarterly growth, the company has seen over 66% growth during this time period, according to Capital IQ. Comparing this to the 5% growth of Lihir and the 13% Newmont Mining rate, the company is doing fairly well. While Buenaventura has a positive margin difference of 77%, Barrick’s revenue per share of 6.69 easily beats out Buenaventura’s 4.49 figure. Going down to the bottom line, earnings are pretty solid for Barrick as well. While I do not like to see quarterly earning growth higher than revenue quarterly growth, there should be no complaints with Barrick’s 139% growth rate when compared to Lihir’s 0.5% quarterly earnings growth and Buenaventura’s 61% number. While questionably different, these numbers are better reflected when used in context with share price. Barrick’s forward P/E ratio of around 15 is not only lower by its multiple of 16, but the industry’s ratio of 43. In addition, Barrick’s multiple is lower than Lihir’s forward of 21 and Newmont Mining’s 29. While Buenaventura’s 9 multiple is considerably lower than Barrick’s figure, Buenaventura also has a higher forward compared to its trailing multiple–a signal the company may be overbought. Looking at more abstract multiples, such as price to sales, price to book, enterprise value to revenue, and enterprise value to EBITDA, Barrick’s respective numbers of 4.4, 1.8, 4.6, and 10.4, when compared to other rival figures, illustrate that Barrick is undervalued. Buenaventura’s respective numbers of 5.8, 3.2, 5.8, and 4.798 are, excluding the EBITDA number which can be explained with a lower enterprise value to market capitalization, are all quite higher than Barrick. Another company, Lihir, the market leader of this industry, has astonishing numbers of 107.58, 41.2, 10.3, and 284.5. While it may be argued that these numbers factor the past twelve months, even with new configuration, the multiples would still be quite higher than Barrick’s figures. In addition, Barrick’s five year PEG of 0.81, another multiple to look at is also lower than its competitors.
Now while these numbers are quite strong, management also needs to be responsible for the success of the company. Fortunately for Barrick, CEO Gregory C. Wilkins, along with the company’s 20,000 employees, has done a terrific job with the company as supported by the management ratios. According to Reuters, Barrick’s ROA of 8.59%, ROI, of 9.39% and ROE of 13.4% all beat the industry average. More importantly, the company’s ROE also handily beats competitor’s Lihir’s number of around 6% and Newmont Mining’s 8%. While these figures are strong, in the case the company is in need of going solvent, there is strong financial strength for this situation to happen. The current ratio of the most recent quarter of 2.6, along with the total debt to equity during the same period of 0.29, while not industry-beating figures, are strong for the business that Barrick operates in. But with capital spending at 18% over the next five years with strong cash flow both in terms of leveraged and operating, there should be no reason to Barrick to sell any of its assets in the foreseeable future.
Therefore, with the figures provided, there is strong support for investors to commit capital to this company. With a respectable dividend yield of 0.80%, and optimism relative to a small short ratio of 2.1, Barrick becomes even more enticing to get into. The other interesting note is the resistance level of 32 and the support level of 27. As the company now trades around $28 dollars, which is below the 50 and 200 SMA average, there is even more reason to start investing in this company as fast as possible. Thus, while growth is limited for short term investors, long term investors will absolutely feel the benefits the company has to offer.