Since hitting a low versus the S&P 500 index in August 2022, Barrick Gold has outperformed the broader market by nearly 16%. Ahead of the earnings season and Barrick Gold’s earnings data scheduled for November 3, 2022, prices of gold and copper miners have benefited from favorable market sentiment. One of the keys to the recent runup in the price relative to the broader index is Barrick Gold’s low forward earnings relative to the industry average. Prices could continue to rise ahead of earnings as investors look for value during a rising rate environment. Barrick Gold has seen its price rise relative to the S&P 500 index despite lackluster returns for gold and copper. What is clear is that investors might be looking for value stocks when there is market turmoil.
Barrick Golds Returns
Since hitting a low in August 2022, Barrick Gold has outperformed the broader S&P 500 index. You can evaluate a stock’s returns by looking at the price ratio relative to another stock or index. For example, if you divide Barrick Gold’s stock price by the SPY (S&P 500 SPDR Trust), you can see that the ratio has rebounded after hitting a low in August by about 16% ((4.62 – 4)/ 4) = 15.5%. If you look at a chart of the ratio of Barrick Gold relative to the SPY, you can see that during 2022, the ratio has oscillated between 5 and 4.
Why has Barrick Gold Rebounded relative to the Broader Market?
One of the reasons that Barrick Gold has likely rebounded versus the broader market is its valuation. At the end of Q3 2022, Barrick gold had a forward price-to-earnings ratio of 14.56, which is a discount to the industry average of 15.76.
What is the difference between a trailing price-to-earnings ratio and a forward price-to-earnings ratio? The trailing price-to-earnings ratio calculates the stock’s current price by the most recent earnings. A high price-to-earnings number could mean the company’s stock price is overvalued. A low price-to-earnings ratio could mean a company’s stock price is undervalued.
A forward price-to-earnings ratio uses the market’s estimates of future earnings. The ratio is calculated by dividing the price of a stock by the estimated forward earnings. Suppose you believe that all of the current and available information is incorporated into the stock price. In that case, you want to evaluate the forward PE relative to the earnings when released. You want to be careful when you use the PE ratio to evaluate a stock. There can be situations when the gains you use are much higher than expected; therefore, the PE ratio might be low but can move lower.
The growth estimates for Barrick Gold are meager. Analysts expect growth to decline by 24.4% quarter-over-quarter. Forecasts show that Barrick is expected to show growth that will decrease by 5.7% in the next quarter but expand by 7% for the year. According to estimates posted by Yahoo Finance, Barick is expected to show revenue of 3.18 billion in the current quarter. Earnings estimates over the past 90-days have remained stable.
With central banks around the world increasing interest rates, investors are looking for value stocks. Until there is a sign that global inflation is starting to ease, investors will likely shy away from growth stocks. Barrick Gold is in the Basic Material sector as a minor of gold and copper. According to Zack Research, a fundamental research firm, Basic Materials ranks in the bottom 35% of all 250 industries. For investors looking to double their money, Zack range Barrick Gold as the single best pick of all of the stocks they follow.
Barrick Gold has declined and is attempting to form a bottom near $14 per share. Prices are hovering near the 20-day and 50-day moving averages. Momentum on Barrick Gold has turned positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal.
Can Barrick Gold Move Higher if Gold Remains Unchanged
The fate of the returns of Barrick is likely tied to the price of gold. Gold trading has been under pressure as the U.S. dollar continues to increase. The dollar has been gaining traction as U.S. yields rise relative to other countries’ fiat yields. When the Fed signals that it’s likely near the end of its tightening cycle, yields should stop moving higher, and the dollar should take a breather. This phenomenon will probably help buoy gold prices.
Gold is quoted in U.S. dollars. When the dollar moves higher, the value of gold in U.S. dollars moves higher. To compensate for a stronger U.S. dollar, the price of gold generally will move lower. The reserve is actual when the value of the dollar moves lower.
Also Read: Things to Consider Before Taking a Gold Loan
The Bottom Line
Barrick Gold has rebounded of late relative to the broader S&P 500 index. The ratio of the stock price has ranged between 4 and 5 during 2022. Barrick Gold will likely fluctuate along with Gold prices and benefit when central banks worldwide stop tightening monetary policy. Zacks’s research picks Barrick as the single stock likely to double. The stock has a forward price-to-earnings ratio lower than its peers in the materials group. The company is expected to release its financial results in early November, which could be an excellent time to evaluate if the stock is still undervalued. The technicals show that the stock price has declined substantially and is attempting to form a bottom near the 20-day and 50-day moving averages. Momentum on the stock has turned positive, which could be a good sign and point to higher prices for Barrick Gold.