…I snagged a chart off my Bloomberg terminal…that shows what I think could be a golden opportunity in one of the world’s biggest gold miners: Barrick Gold (NYSE: ABX).
The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article written by
The chart below shows…that the yellow line (Barrick’s enterprise-value to EBITDA multiple) has plunged compared to the black line which is the price of gold…
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.
…I am 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 – and investment bankers might look at Barrick right now and lick their chops…[and]
- 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, but let me tell you, Barrick’s problems with production and costs are temporary. They will pass.
Gold, meanwhile, is still in the early stages of a big bull cycle and there are many fundamental forces lining up to push the metal higher so, do I think Barrick will get over its problems and ride the rising surge of gold prices higher? You bet I do.
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