Is Barrick Gold Enticing at Current Prices?

With shares of Barrick Gold (NYSE:ABX) trading around $18, is ABX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Barrick Gold is engaged in the production and sale of gold as well as exploration and mine development. The company also produces copper and holds other interests, which include a nickel development project. Barrick Gold’s business is organized into seven primary operating segments: four regional gold businesses, a global copper business unit, an oil and gas business, and a capital projects group. Its gold, copper, nickel, and oil and gas businesses and interests are dispersed around the world.

Barrick Gold’s 85-year-old co-founder and co-Chairman, Peter Munk, has given no indiction that he’ll retire anytime soon, despite pressure from large investors and shareholders to give a date when he’ll leave the company. According to a Wall Street Journal report, investors have told the Toronto-based company — which is the world’s largest miner of gold — that they want new independent directors to be brought in. Munk has shown no desire to step down and hand the leadership position over to co-Chairman John Thorton.

T = Technicals on the Stock Chart Are Mixed

Barrick Gold stock has not done well in the past couple of years. The stock is currently trading sideways as it attempts to search and find value. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Barrick Gold is trading between its key averages, which signals neutral price action in the near term.

ABX

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of Barrick Gold options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Barrick Gold Options

56.77%

86%

85%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Steep

Average

November Options

Steep

Average

As of Tuesday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Barrick Gold’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Barrick Gold look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

15.38%

-18.27%

-418.65%

-54.41%

Revenue Growth (Y-O-Y)

-2.35%

-5.68%

11.35%

-13.47%

Earnings Reaction

-0.94%

7.50%

2.59%

-9.38%

Barrick Gold has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Barrick Gold’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Barrick Gold stock done relative to its peers – Goldcorp (NYSE:GG), Newmont Mining (NYSE:NEM), and Freeport McMoRan (NYSE:FCX) — and sector?

Barrick Gold

Goldcorp

Newmont Mining

Freeport McMoRan

Sector

Year-to-Date Return

-48.40%

-29.40%

-39.30%

-2.11%

-44.90%

Barrick Gold has been a poor relative performer, year to date.

Conclusion

Barrick Gold is a gold mining firm that also has interests in copper, nickel, oil, and gas projects around the world. The company’s current, 85-year-old CEO has not discussed retirement as pressures from investors arise. The stock has not done well in the past couple of years and is currently searching for value. Over the last four quarters, earnings and revenues have been declining. However, investors have mixed feelings about recent earnings announcements. Relative to its peers and sector, Barrick Gold has been a weak year-to-date performer. STAY AWAY from Barrick Gold for now.

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