I still think that one of the best trades going is investing in gold. The equity market has seen strong interest in higher-dividend-paying stocks, but the gold play is one that covers all the bases. The global economy is in a period of slow economic growth and a well-deserved age of austerity. Accordingly, investor sentiment for stocks, bonds and currencies is and will continue to be lackluster. With the risk of sovereign debt defaults or downgrades very real, there remain very few places that can provide that “store of value” investors require.
It would be ideal then to be a shareholder in large-cap, dividend-paying gold producer over the next several years if you share this view. An investor could consider playing a growth/income/security trade on the only commodity in the world that can beat a currency.
Consider, for example, Barrick Gold Corp. (NYSE/ABX). Here you have a $44.0-billion gold company that’s now trading about 12 points below its 52-week high of $55.74 per share. This company is one of the largest gold/precious metals producers in the world, and owns some 25 operating mines. If you pull up a stock chart on the company, you’ll notice a solid, long-term track record of wealth creation for shareholders. The stock has experienced long periods of flat trading action, followed by significant points of capital appreciation.
In the first quarter this year, Barrick generated revenues of $3.1 billion, compared to $2.6 billion in the same quarter last year. Earnings grew 22% to $1.0 billion, up from $820 million.
First-quarter gold production was 1.96 million ounces at a total cash cost of $437.00 per ounce. The company is on track to meet its 2011 guidance of producing a total of 7.6 to 8.0 million ounces for total cash costs of between $450.00 and $480.00 per ounce, becoming one of the lowest cost senior gold producers.
This year, Barrick is increasing its exploration budget by over 50% to a planned $320 million to $340 million. In 2010, exploration efforts increased the company’s total measured and indicated gold resources by 24%. Barrick also recently announced that it would purchase Equinox Minerals Ltd. for about $7.3 billion in Canadian dollars, which will add significant copper and gold reserves to its portfolio. Barrick’s near-term target is to be producing approximately nine million ounces of gold equivalent ounces within the next five years.
It’s actually quite difficult in this market to be a buyer of stocks. There’s so much uncertainty and for every piece of news that’s positive, we get another that’s disappointing. There is no rush for any equity investor to be taking on new positions in this market. I just think that a large-cap gold producer like Barrick would be a welcome addition to any long-term equity portfolio. Right now, there isn’t much growth out there to be found at all. Please note that this is not recommendation to buy Barrick’s stock; it’s just an example of the type of investment that may be able to provide that growth, income and security lots of investors are seeking.