Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Barrick Gold Proves it’s Not a Good Idea to Listen to Billionaires

Investment legend George Soros just showed us why investors should pay more attention to earnings reports; than news stories about billionaires’ buying habits. The man who broke the Bank of England; purchased $264 million worth of the badly ailing miner Barrick Gold Corp (NYSE: ABX), through his Soros Fund Management.

Soros is apparently betting that stocks and China’s currency; the Yuan, will crash and send gold prices up. That may or not occur, but the latest earnings reports show us that Barrick Gold is in terrible shape. Barrick might be the world’s largest gold miner, but it is losing money like crazy.

Barrick’s Revenue is in Free Fall

Some of the sorry highlights from Barrick’s March 31 financial numbers include:

  • A negative net income or loss -$2.978 billion for the first quarter of 2016.


  • Note: my numbers taken from ycharts were a little different than the ones in Barrick’s earnings release as at least correspondent pointed out. Here’s what the release said:


  • Barrick reported adjusted net earnings of $127 million ($0.11 per share), and a net loss of $83 million ($0.07 per share), in the first quarter.


  • My numbers are different because I use the total amount in ycharts charts. Thanks to the correspondent who pointed this out.


  • A negative earnings per share number of -2.561.


  • A negative profit margin of -4.30%.


  • A $315 million drop in revenue for the first quarter of 2016. Barrick started the year with revenues of $9.029 billion in December that fell to $8.714 billion in March.


  • Barrick’s revenue has been falling for 17 straight quarters since fourth quarter 2012. During that time the company’s revenues fell from $14.44 billion in December 2012 to $8.174 billion in March 2016. The company has lost $6.266 billion in revenue over the past six years or around $1 billion a year.


  • Barrick’s investors were rewarded with a return on equity of -33.48%.


Although Barrick has come back in recent months; it went from $8.11 a share on January 22, 2016 to $19.11 on May 18, 2016. Naturally this has set many investors’ value detectors off.

Barrick does look fairly good from a value investor’s standpoint it reported $2.323 billion cash and short term investments on March 31, 2015. The company also reported making $1.059 billion in cash from investing and $2.929 billion in cash from operations during the first quarter. Barrick is still making money even though its revenues have been free fall.

It is also undervalued with an enterprise value of $31.64 billion and a market capitalization of $22.27 billion. It also reported assets of $25.37 billion and liabilities of $18.19 billion including $9.126 billion in short term debt.

My guess; based on these numbers, is that Soros is trying to make some quick cash by buying a stock he thinks will go up in the short term. He thinks Barrick will double or triple over the next few months before falling back down to earth. That means George will probably dump his Barrick shares in the next few months for some quick cash.

That might be a good deal for him, but average investors should stay away from this company it’s in a very unstable industry – gold mining. Gold is also a commodity; and we all know that commodities are in the toilet these days.

Gold prices are higher because of volatility; particularly in China, but that volatility might not last. One problem that gold investors forget about is that if the economy in the People’s Republic does crash; large numbers of Chinese investors will start dumping their gold for quick cash, and drive down the prices.

Barrick Gold

Cash is Better than Gold

My suggestion would be to stay away from gold mining stocks right. Yes, they are cheap but the underlying market is too volatile to make them a sound investment. Instead of gold stocks, investors would be better advised to put their money in cash-rich companies like Alphabet (NASDAQ: GOOG), Ford (NYSE: F), Berkshire Hathaway (NYSE: BRK.B) Apple (NASDAQ: AAPL), Cisco System (NASDAQ: CSCO), Oracle (NYSE: ORCL), Microsoft (NASDAQ: MSFT) and Facebook (NASDAQ: FB).

Those organizations have the potential to grow dramatically during a bear market; because they have the resources to make major acquisitions when other companies are cheap. More importantly they will pay nice returns once the market recovers, while gold companies will sink deeper into debt and default.

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