March 1, 2022

Today, I’m adding Barrick Gold (GOLD). The company engages in the exploration, mine development, production, and sale of gold and copper properties

Market Overview

It was a wild week for the market, as Russian President Vladimir Putin announced that Russia would “conduct military operations” in eastern Ukraine. This news spooked investors as the indexes fell sharply, and the VIX spiked above 35. The fear was palpable … at least for a few hours. However, as Thursday transitioned from morning to afternoon traders bought the dip, and continued to do so until the closing bell Friday.

Net/net, after a wild week of ups and downs the indexes were little changed as the Dow lost 0.1%, the S&P 500 was up 0.8% and the tech-heavy Nasdaq rose 1.1%. Year-to-date the Dow, S&P 500 and Nasdaq are all lower, by 6.3%, 8.0% and 12.5%, respectively.

Even though the two-day rally to end the week was a welcome sign for the bulls, inflation is still a serious issue that the Fed, the market, and investors have to contend with going forward, as last week’s Personal Consumption Expenditures (PCE), the Fed’s favorite gauge of inflation, rose at its fastest rate since 1983.

So again, until we see a bit of clarity on inflation and an end to the situation in Ukraine, expect to see more volatile days ahead.

Today, I’m adding Barrick Gold (GOLD). The company engages in the exploration, mine development, production, and sale of gold and copper properties.

New Recommendation

The Stock – Barrick Gold (GOLD)
Why the Strength
Safe-haven demand for gold has dramatically increased as geopolitical tensions rise along with inflation, giving a major boost to low-cost producers like Barrick.

With an all-in sustaining cost of $1,026 an ounce ($864 below current prices), Barrick is one of the world’s lowest-cost gold miners and the second-largest by production. In its just-released Q4 report, total revenue of $3.3 billion in Q4 was 1% higher from a year ago while per-share earnings of 35 cents beat the consensus by 6%. But it was the company’s free cash flow from operations that wowed Wall Street, along with a new $1 billion share repurchase plan and dividend strategy.

Barrick’s cash strength also allowed it to increase the dividend by 11% (now a 1.8% annual yield) and announced a performance dividend policy that will enhance shareholder returns (extra five to 15 cents per share, per quarter) when its net debt is less than zero.

Barrick set a couple of notable records, including overall gold production of around 1.2 million ounces in Q4 (led by record production at its 62% owned Nevada Gold Mines), and a record return of $1.4 billion in cash to shareholders for the year.

Barrick’s copper business also had a great year, with average realized prices for the metal up 48% from a year ago while the firm’s costs were just 17% higher. (The improved margins have prompted analysts to forecast a 6% increase in Barrick’s copper revenue for 2022.)

Looking ahead, the company plans to advance its pipeline of large copper, silver and gold growth projects, in Alaska and Chile, while at the same time working on the resumption of operations at its major gold mine in Papua New Guinea later this year. And if bullion prices keep rising, Barrick’s gold margins should notably improve this year. It’s an interesting commodity, turnaround and cash flow story.

Technical Analysis
GOLD’s post-crash rally petered out in August 2020, with the stock then starting a slide that didn’t end until last September at around 18. It took shares 11 more weeks of backing and filling to establish a double-bottom at this level, but the bottoming process wasn’t fully complete until shares blasted out of the base two weeks ago.

There’s still overhead supply to chew through, but our bet is the long decline and bottoming process wore out the weak hands. Stop—19.5

The Covered Call Trade
Buy Barrick Gold (GOLD) Stock at 23.20, Sell to Open April 22 Strike Calls (exp. 4/14) for $1.70 or a Net Price of 21.50 or less

Static Return: $50 per covered call (2.32%)

Breakeven: 21.50

Covered Call Return (if assigned): $50 per covered call (2.32%)

Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.

However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 21.50 or less. (In this case 23.20 minus 1.70 = 21.50. Or another example is you could pay 23 for the stock and sell the call for 1.50, which also equals 21.50.)

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

Open Positions
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.

The next Cabot Profit Booster issue will be published on March 8, 2022.