Happy Friday, everyone. Sean Brodrick here. I need to share a chart with you. One I snagged off my Bloomberg terminal. It shows what I think could be a golden opportunity in one of the world’s biggest gold miners: Barrick Gold (NYSE: ABX).
The chart shows a couple things. You can see how the yellow line plunged compared to the black line.
The black line is the price of gold. The yellow line tracks Barrick’s enterprise-value to EBITDA multiple.
I’ll explain that …
Enterprise value is market capitalization, plus debt and a couple other things, minus cash and cash equivalents.
EBITDA is essentially net income with interest, taxes, depreciation and amortization added back to it.
Why am I using this, and not price-to-earnings (P/E)? Because EV/EBITDA is the multiple that Wall Street uses when figuring the theoretical takeover value for a company. In other words, how an investment banker might look at it.
Investment bankers might look at Barrick right now and lick their chops.
Why might you want to use this metric? Academic research has shown that stock selection based on EV/EBITDA outperforms P/E and price-to-book value methodologies on a risk-adjusted basis.
Now let’s add in the fact that, the last time Barrick traded at this valuation, gold was selling for 12% less than it is today.
Sure, Barrick is down because it had a lousy earnings quarter. It had problems. Let me tell you, Barrick’s problems with production and costs are temporary. They will pass.
So, do I think Barrick will get over its problems and ride the rising surge of gold prices higher?
You bet I do.
Now, if you know about me and my Red-Hot Resource Millionaire, you know I focus on the big opportunities in smaller stocks. Gold and silver explorers, developers and miners that are trading for pennies compared to where they will be a year or two down the road.
But I’m not going to ignore big opportunities like Barrick is showing us here. It might not fit in Red-Hot Resource Millionaire. But it sure will fit in the portfolios of investors with vision and a little patience.
You can decide for yourself if that’s you. You’re in charge of your own investment destiny.
And we might not have to wait long …
Gold is coiling up. A blind fool could see that. Bear raids are ending in frustration. We’ve probably seen the last of Fed interest rate hikes this year, as U.S. GDP growth is crawling along at 0.7%.
Hell, yeah! This is a fertile environment for gold, silver and miners of all sizes. We might not have to wait long at all.
All the best,
Brad note: Thanks, Sean. I appreciate you sharing your opinion on Barrick. It’s just one of the extraordinary opportunities you’ve shown us in recent weeks. It looks like fireworks will come early this year for gold miners — May could be downright explosive!
It may not have been an explosive week in the markets, but it was memorable in a good way. The Dow Industrials touched 21,000 midweek on what Wall Street perceived as good news out of Washington.
Congress prevented a shutdown this week, approving a short-term spending bill to keep the lights on for another week. But the real driver for stocks was President Trump’s proposed tax reform. Whether it becomes a reality is still anyone’s guess. But hope was enough to send stocks higher for the week. The Dow gained almost 2% during this final week of April, and the S&P 500 edged 1.5% higher during the same time frame.
The Nasdaq Composite was the index to watch this week, though. It crossed above the 6,000 mark for the first time ever, and notched a nice 2.3% weekly gain on the back of big earnings from the world’s biggest tech companies.
This was a nice end to an otherwise-uneventful month for stocks. The broader-market indices gained about 1% for April.
• Big moves for Amazon (AMZN), Alphabet (GOOGL): Both companies reported earnings last night. And both notched some nice weekly gains — 3% for AMZN and 8% for GOOGL. And Comcast (CMCSA) gained 7.2% since announcing earnings Thursday. (A reminder: Comcast is one of the ISPs that stands to benefit from recent internet privacy rollbacks.)
• GOOGL co-founder joining space race: Sergey Brin has been building an airship, modeled after the U.S. Navy’s USS Macon, at a NASA research center. His co-founder Larry Page will keep his focus on flying cars. (Bloomberg)
• U.S. Steel (X) dropped 26.6% this week: Even though steel prices rose, the company’s second-largest producer reported "abysmal" earnings, as one Jefferies analyst put it. Nucor (NUE), the nation’s largest steel producer, finished the week flat.
• Weekly, monthly loss for oil: Black gold fell 0.6% this week, and 2.5% for the month of April. Even though OPEC continues to cut production — and even as Russia reportedly honored its production cuts this month — U.S. output kept a lid on prices. WTI crude ended the day at $49.33 a barrel.
• Big gain for Weight Watchers (WTW): Mindy Grossman, former CEO of the Home Shopping Network, will join the company as CEO in July. WTW has been without a CEO since late last year. Shares are up 80% year-to-date.
• Good April for gold: The yellow metal gained 1% amid dollar weakness and despite rising stock prices as Wall Street dared to hope for tax reform. Bullion ended the month at $1,268 per troy ounce.
Good luck and happy investing,
Uncommon Wisdom Daily