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,