With COVID-19, plunging oil prices, credit/health worries and central bank printing, it’s a time of maximum uncertainty—and such uncertainty plays right into the hands of gold, which has popped back toward multi-year highs. The world’s second-largest gold mining company, is well positioned to benefit from this strength.
Cabot Profit Booster 117
Since last Tuesday’s Cabot Profit Booster idea the S&P 500 rallied approximately 10% which helped all of our stock holdings. That being said, I anticipate further volatility to come in the days/week to come, so for this week I chose a stock from Cabot Top Ten Trader that is more of a defensive play. Here is that stock and trade …
The Stock – Barrick Gold (GOLD)
With COVID-19, plunging oil prices, credit/health worries and central bank printing, it’s a time of maximum uncertainty—and such uncertainty plays right into the hands of gold, which has popped back toward multi-year highs. Barrick Gold, the world’s second-largest gold mining company, is well positioned to benefit from this strength.
The metal’s improving fortunes even before the virus allowed the company to deliver a huge earnings surprise in Q4, and revenue, net income and free cash flow have seen impressive upward trends since bottoming in 2018. Higher gold prices have also made growth through M&A attractive for miners once again, with Barrick gobbling up with Randgold Resources earlier this year; it further combined its Nevada mining assets with Newmont to create a joint venture company (Nevada Gold Mines) that’s the world’s largest production complex.
Barrick forecasts all-in sustaining costs, a key metric for miners, at $945 per ounce this year, miles below current prices, giving the firm plenty of room to take on additional projects. (Analysts see sales and earnings up 12% and 33% (respectively) in 2020.) The company is disposing of non-core assets, rapidly paring its long-term debt (halved in 2019!) and has announced a 10-year plan to become the world’s most valued bullion company, focusing on steady production and gushing free cash flow. The wind is certainly at Barrick’s back today.
Technical Analysis
Despite the global uncertainties, gold and gold stocks got hit hard during the first wave of the virus-related selling, and GOLD was no exception, nearly getting cut in half at its nadir! However, the buyers quickly stepped in—shares finished up two weeks ago after that huge shakeout and have now powered back to their 50-day line. If you want to play gold, then GOLD looks like the one of the best options. Stop - 15.5
The Covered Call Trade
Buy Barrick Gold (GOLD) Stock at 19, Sell to Open May 19 Calls (exp. 5/15/2020) for $1.50, or a Net Price of 17.50 or less
Static Return: $150 per covered call (8.57%)
Breakeven: 17.50
Covered Call Return (if assigned): $150 per covered call (8.57%)
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 17.50 or less. (In this case 19 minus 1.50 = 17.5. Or another example is you could pay 18.75 for the stock and sell the call for 1.25, which also equals 17.50)
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
