It was noted on by CNBC that analysts are predicting gold and gold miners to perform quite nicely if the Federal Reserve were to actually implement a third round of Quantitative Easing, or QE. In my opinion, I think gold will actually surpass the $1700/ounce mark and trades almost near the $1800/ounce mark, which is similar to the comments made by Phil Roberts, the analyst at Barclay's who said "What we're seeing now is gold pushing against the top of the cloud (above the middle of the range) pushing beyond $1,700 an ounce and there's another 100 dollars to the topside quite easily." In the wake of Mr. Roberts comments and the $40/ounce pop gold realized on Friday, I wanted to take a look at Barrick Gold (ABX) and highlight of the reasons why potential investors should consider a position.
Barrick Gold, which is based in Toronto, Ontario, Canada, engages in the production and sale of gold and copper. The company has a portfolio of 26 operating mines, and exploration and development projects located in North America, South America, the Australia Pacific region, and Africa. It also holds interests in oil and gas properties located in Canada. There are two catalysts to consider when it comes to ABX and they are the company's margins and the company's returns on both assets and equities in the last 12 months. If we break down each catalyst we'll actually see that ABX outpaces much of their competition within the gold sector.
In my opinion, the larger the profit or operating margin the more attractive the company, and when those numbers outpace the competition the company is certainly more attractive to potential investors. In the last 12 months ABX has demonstrated a profit margin of 27.85% and an operating margin 42.04%, which outpaced Kinross Gold Corp. (KGC) which demonstrated a negative profit margin of -56.71% and an operating margin of 31.21%. From a margin perspective ABX clearly outpaces the competition and looks very attractive at these levels.
Comparable Returns on Assets & Equities
Over the last four quarters ABX has demonstrated very respectable returns on both assets and equities and if such returns can continue, this catalyst will certainly contribute to the growth of the company's stock. In the last 12 months ABX has demonstrated a return on assets of 8.02% and a return on equity of 16.32%, which when compared to other competitors clearly outpaces both Goldcorp, Inc. (GG) which demonstrated a return on assets of 5.03% and a return on equity of 6.95% and KGC which demonstrated a return on assets of 4.57% and a negative return on equity of -16.92%.
ABX, in my opinion, is one the better companies within the gold sector and if the company can continue to outpace the competition when it comes to both margins and returns we could easily see ABX surpass the $42/share level. If gold on the other hand surpasses $1750/ounce or even $1800/ounce, we could see ABX grow at a much better pace than the 81.00% analysts are predicting over the next 5 years.
Disclosure: I am long ABX.