Will the Recent Rally in Gold Fuel a Recovery of Barrick's Stock?
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In a recent review interview published in Bloomberg, Barrick (NYSE: ABX) officials claimed gold producers' stocks prices are due for a rally after they have been underperforming for years compared with the sharp gains in gold price.
Is Barrick, the leading gold producer in the world, due for a comeback in 2012? Barrick officials claim that not only Barrick but also other leading gold producers didn't enjoy the rally of gold price in recent years as many investors seek gold-based funds such as SPDF, and thus rendering metal producers' stocks cheap. This argument has some merit because SPDF didn't expand very promptly during recent years.
Without getting into a micro analysis on Barrick's financial reports, even though a quick glance does show an operational loss during 2009, which later turned into profit in 2010 financial reports as analyzed herein, let's examine the situation from a macro perspective by comparing gold with Barrick's stock performance in the last few years. With this information let's try to answer if it is likely that Barrick will make a comeback on account of the high price of gold.
The chart above shows the developments of gold (red line) and Barrick's stock (blue line) between the years 2008 and 2012 (the price of gold is in US dollar per t oz ). We can extract several points from this chart:
While gold had a steady growth and eventually (up to February 2012) rose by nearly 90%, Barrick's stock slipped by 1.9%.
Finally, during 2011 Barrick's stock price fell by 14% while the average price of gold rose by 18%.
Therefore, the possibility of Barrick's stock making a comeback only because of the currently high gold seems less likely given Barrick's performance during 2011. Don't forget that during 2010 when Barrick rose by nearly 36%, its operational profitability was nearly 40% and its net profitability was nearly 29%. So even though gold price had a big part in reaching this profitability, without having such big numbers the stock probably wouldn't have made such a comeback in 2010.
It leaves us with the possibility that Barrick's price will rally if gold will have another monster year as it had back in 2009 or 2010. But since there are little expectations (at this moment) that gold price will sharply rise and reach the $2,000 mark by the end of the year, I speculate a comeback of Barrick solely because of the future development of gold seems less likely in the months to come.
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