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Why Barrick Gold & Newmont Are Must-Adds to Your Portfolio

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After three lackluster years, gold has regained its shine in 2016, as reflected by a 23% rise since the beginning of the year. The unprecedented Brexit decision saw gold prices cross the $1,300 per troy ounce threshold in Jun 2016 and prices have remained above that point since.

The Brexit-induced chaos in the global markets spurred investors’ to scurry for safe havens, triggering a strong rally in gold. Moreover, gold prices have been gaining support from expectations that central banks around the world would step up monetary stimulus to avert economic damages from Brexit. The deferral of U.S. interest rate hikes has been another major factor that has aided gold’s cause this year.

Concerns about global economic growth, along with lingering economic and political uncertainties, are likely to act in favor of gold in the near to medium term. Further, gold prices are generally helped by retail demand in countries like India and China, attributable to wedding and festival seasons occurring in the later part of the year. While demand will remain solid, global production of gold is likely to decline by 3% in 2016. This imbalance could facilitate prices moving north.

MINING-GOLD Industry Price Index

MINING-GOLD Industry Price Index

The spike in gold prices has led to a surge in the share prices of many gold miners, reversing the harrowing losses incurred in the past year. Gold stocks which were out of favor last year are now being considered as solid options in today’s market.

While mid-cap gold miners like New Gold, Inc. (NGD - Free Report) with a Zacks Rank #1 (Strong Buy), IAMGOLD Corp. (IAG - Free Report) and Gold Fields Ltd. (GFI - Free Report) both carrying a Zacks Rank #2 (Buy) have witnessed a surge in their prices, the bigger mining giants continue to see high trading volumes and interest from investors.

Out of these giants, top ranked Barrick Gold Corp. (ABX - Free Report) with a market cap of $20.51 billion and close second Newmont Mining Corp. (NEM - Free Report) having a market cap of $20.42 billion have invoked the most interest as always. Their share prices have catapulted this year thanks to the rally in gold prices, placing them among the top-performing precious metals stocks. Both of these stocks currently boast a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. Let’s have a closer look at what factors make these two stocks so desirable.

Solid Price Movements

Barrick Gold’s share price has surged 138.48% year to date and has outperformed the S&P 500 by 125.68%.

BARRICK GOLD CP Price

Newmont’s share price has gone up 113.9% year to date and has also outperformed the S&P 500 by 102.41%.

NEWMONT MINING Price
 

NEWMONT MINING Price | NEWMONT MINING Quote

Positive Record of Earnings Surprises

Barrick Gold has delivered an average positive earnings surprise history of 26.91% in the past four quarters and Newmont has an average positive earnings surprise of 17.17%.

Estimates Northbound

Both Barrick Gold and Newmont have witnessed upward revisions in their earnings estimates for the current year, over the past 60 days which indicates that analysts are becoming more optimistic on earnings for the year. While Barrick’s estimates have gone up 6%, Newmont’s estimates have moved north by 15%.

Solid Last Quarter Earnings

Barrick’s second-quarter 2016 adjusted earnings per share of 14 cents surged 180% from the year-ago quarter figure of 5 cents per share. Newmont’s second-quarter 2016 adjusted earnings surged 69.2% year over year to 44 cents per share.

Positive Earnings Growth

For 2016, the Zacks Consensus Estimate for Barrick Gold is at 67 cents, reflecting 121.67% year-over-year growth. For Newmont, the estimate is currently pegged at $1.88, projecting a 91.33% year-over-year climb.

Upbeat Guidance for 2016

For the year Barrick expects to produce 5–5.5 million ounces of gold. In line with its reputation of being a low cost miner, the company also remains committed to cut mining costs with all-in sustaining costs (AISC) for 2016 estimated to be $750–$790 per ounce, down from $831 per ounce in 2015.

Newmont anticipates to produce gold in the range of 4.7-5.0 million ounces in 2016. Gold AISC is projected to lie between $870 and $930 per ounce in 2016

Strong Fundamentals

Barrick has a healthy cash flow profile, enabling it to invest in attractive expansion opportunities. The company is also making considerable progress with its cost and efficiency improvement programs. We are also encouraged by its efforts to cut debt. The company has already reduced its total debt by $968 million in 2016, representing nearly half of its debt reduction target for the year. In 2016, the company plans to reduce its total debt by at least $2 billion. This would, in turn, lower interest expenses.

Newmont also continues to invest in growth projects that are estimated to boost its production performance. The company is making significant progress with its cost and efficiency improvement programs. Successful cost reductions are allowing the company to generate positive free cash flow. Newmont remains committed to de-lever its balance sheet.

In a Nutshell

A strong price increase implies robust demand for the stock, which is often triggered by either a good earnings performance or some positive news, which may further boost the stock price. Strong upward estimate revision may carry the momentum forward a little longer, making it the ideal time for investors to get on board. A combination of these two factors makes Barrick Gold and Newmont a must-add to your portfolio at the moment.

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