Barrick Gold: A Shining Example Of A Lackluster Stock

Barrick Gold (ABX) looks overvalued to us and we recommend buying downside protection in the options market. Given its large capital expenditures on both acquisitions and organic growth, we see a large negative cash flow for the next two years, resulting in increased debt, leverage and, possibly, equity issuance. Its cost overruns and delayed start to its vaunted Pascua-Lama mine hurt its credibility with investors and recent comments from management have rung hollow. Looking beyond these problems, we see the stock's current price (about $34 per share) reflecting a 6% relative growth of gold prices vis-a-vis cost of production which we believe is unrealistic. It will survive, but we see a share price in the mid 20s as...