A Great Undervalued Company: Barrick Gold

By Timothy Lutts,

Shutterstock photo

Over the past two months, most of the stocks we've recommended in Cabot Wealth Advisory have gone up.

On September 7, in an issue titled "Up, Up and Away, I recommended Netflix ( NFLX ) . It's up 19%" since then.

On September 9, Paul Goodwin, editor of Cabot China & Emerging Markets Report, recommended China New Borun ( BORN ) .  It's up 53% since then.

On September 13, I recommended JinkoSolar ( JKS ) .  It's up 36% since then.

And on September 16, Brendan Coffey, editor of Cabot Green Investor, recommended ReneSola ( SOL ) , which is up 26% since then and American Superconductor ( AMSC ) , which is up 28%.

In hindsight, those were great recommendations.  But in all honesty, the real hero behind those gains is the bull market.

And as the old market truism says, "Don't Confuse Brains with a Bull Market."

We try not to, and by the same token, we try never to forget that the market can go both ways.  When it's rising, it lifts all boats.  And when it's falling, even the best companies' stocks have trouble keeping their heads above water.

Right now, the tide is still coming in.  Most boats are being lifted, and I sincerely hope you're making the most of it.

Cabot subscribers certainly are.  Just last week, Whole Foods Market (WFMI) , jumped 15% (!!) after reporting better-than-expected third quarter results. Las Vegas Sands (LVS) just advanced 10 days in a row, for a gain of 37%.  And Google (GOOG) is up 85 points in the past four weeks!  All these stocks are in Cabot advisories now.

But knowing that the pendulum on Wall Street swings left and right, I'm now expecting that some of the people who were responsible for creating those recent highs will have to sit through a period of … let's call it discomfort… before their optimism is rewarded.

Now, I'm not trying to call a top here.  I'm well aware that trends tend to go farther than expected, and that stocks that are overbought can remain overbought.  Long-term, I'm as bullish as anyone.

But the market is a two-way street … and for new investments today, an argument can be made for taking the low-risk route, particularly is aggressive investing if just not your style.  At Cabot, that means selecting something from Cabot Benjamin Graham Value Letter, which uses the classic value investing methodology that has worked so well for Benjamin Graham, Warren Buffet and thousands of other patient investors who have mastered the science of buying low and selling high.

The latest issue, which came out last week, had a special feature on Undervalued Companies with Low Price-to-Book Value Ratios.

Editor Roy Ward rotates through six specific Special Features a year, so he returns to this one twice a year, and the good news is that over the past 62 months (the period we've published the advisory) this is the best-performing selection criteria of them all, even outperforming the Classic and Wise Owl models.

Roy wrote, "To select these stocks, we applied four additional criteria to the stocks in our database:

• excellent financial strength
• increasing dividend payments
• low price-to-earnings ratios
• strong earnings prospects

The six stocks we chose present a wide range of industries: gold, securities trading, semiconductor components, energy, personal computer distribution and laboratory equipment and services."

And I'll give you one of them here.  It's Barrick Gold (ABX) :

Roy writes, "Barrick Gold, based in Toronto, is the world's largest gold producer with 26 mines in operation across five continents. The company's new Cortez mine in Nevada is now producing 15% of the company's total gold production at a very low $300 per ounce. Barrick has additional low-cost mines ready to start production during the next five years, which will lead to higher profit margins. Earnings per share surged 87% during the past 12 months and will likely increase another 17% during the next 12 months. At 14.3 times forward 12-month EPS, ABX shares are among the least expensive in the industry (Goldcorp, Agnico-Eagle and Silver Wheaton sell at 33 times forward EPS or higher). ABX is medium risk."

Should you buy it now?  Maybe, but the right way to invest in value stocks is to diversify, so that an unexpected dip by any one stock doesn't hurt too much.

And Roy says, "We strongly recommend buying as many of the six stocks as is practical to spread your risk. We encourage you to invest in the new recommendations at current price levels and hold until our next Low Price-to-Book Value Special Feature appears in the May 2011 issue of the Cabot Benjamin Graham Value Letter."

Learn more about Barrick Gold and this proven value investing system in Cabot Benjamin Graham Value Letter .

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: AMSC , BORN , JKS , NFLX , SOL

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