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Royal Gold (RGLD) vs. Barrick Gold (GOLD): Which Stock is the Better Investment?

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Precious metals have been a store of value for over 6,000 years and have historically provided an effective hedge against inflation. These highly regarded assets are often referred to as “safe haven” investments for this precise reason.

Moreover, the global precious metals market size is expected to gain momentum in the next decade, reaching $403.08b by 2028 up from $275.40b in 2021. This momentum translates into a CAGR of 5.6%. This increase in the CAGR is attributable to the increase in demand to pre-pandemic levels as the virus wanes.

As the current economic climate makes precious metals investing more attractive, we will have a look at two companies in the industry to see which is the better investment in the long run: Royal Gold (RGLD) and Barrick Gold (GOLD).

Royal Gold (RGLD)

RGLD is a precious metals company that engages in the acquisition and management of precious metal streams, royalties, and similar production-based interests. It owns interests on approximately 187 properties on five continents, including interests in 41 producing mines and 17 development stage projects. Its portfolio includes principal, producing and development properties, as well as evaluation and exploration stage properties.

Since the beginning of the year, RGLD advanced slightly, up 3.89%, outperforming its complex and the SPDR Gold Shares benchmark (GLD), which declined 5.97% year-to-date. 

In terms of financials, the precious metal company’s net sales advanced vigorously in 2021, up 23.4% year-on-year to $616m. Moreover, the company’s net-sales forecast for 2022 is expected to accelerate to $698m, up 13.3%. RGLD’s net-income growth is anticipated to increase by 4.6% year-on-year to $317m in 2022, corresponding to a huge net margin of 45.5%.

RGLD’s balance sheet remains healthy, as the company managed to increase its net cash position consistently in past years. The company should post a net cash position of $226m in 2021 and should lift it more than 2x in 2022 to $557m. This precious metals company continues to invest in order to sustain its growth prospects, posting a comfortable CAPEX/Sales above 30%.

RGLD’s valuation metrics are evolving in line with its peers. The company is currently trading at a 2022e P/E ratio of 23.3x and a 2022e EV/EBITDA of 12.7x. 

Barrick Gold (GOLD)

Barrick Gold Corporation is a gold mining company principally engaged in the production and sale of gold and copper, as well as related activities, such as exploration and mine development. The company holds interest in 14 gold mines, which includes six Tier One Gold Assets. The company’s gold mines are geographically diversified and are located in Argentina, Canada, Cote d’Ivoire, the Democratic Republic of Congo, the Dominican Republic, Mali, Tanzania, and the United States. 

GOLD’s year-to-date performance dipped 12.82%, underperforming its benchmark, GLD, and its peer, RGLD.

The gold mining company’s top-line growth is less attractive than RGLD. Net sales are expected to decline slightly in 2021, down 2.3% year-on-year to $12.3b, but should rise marginally in 2022, up 1.7% year-on-year to $12.5b. In addition, GOLD’s net income should follow the same path at its top line, with revenues declining moderately in 2021, down 7.6% year-on-year to $2.14b, but should lift vigorously in 2022, up 11.6% to $2.39b, representing a net margin of 19.2%.

On the other hand, the company has significantly improved its balance sheet over the past year. The company has transitioned from net debt of $2.2b in 2019 to a net cash position of $853m in 2021, more than doubling it compared to last year.

In terms of valuation, the gold mining company is currently trading below its peers, posting a 2022e P/E ratio of only 15.7x and an EV/EBITDA of 4.68x.

Conclusion

The precious metal market has underperformed the broader market this year, as investors prefer to look for more opportunistic investments linked to the rebound of the global economy. Nevertheless, the precious metals complex is a defensive sector that brings stable earnings regardless of the state of the overall stock market. 

I believe investors looking to diversify their holdings should consider investing in GOLD, rather than RGLD. That’s because GOLD has cheaper valuation metrics and a healthier balance sheet.

In addition, Wall St. has also given GOLD an average price target of $27.27, which represents an increase of 39.4% from current levels compared to RGLD’s 21.6% increase.

Cristian Docan

Cristian is an experienced investment analyst and financial writer. Prior to Wealthpop.com, Cristian spent three years as a consultant providing investment research and content to financial services companies and online publications on the Oil & Gas sector. Cristian enjoys researching and writing about stocks and the markets. He takes a fundamental, technical and quantitative approach in evaluating stocks for readers. Previously, Cristian was Power Portfolio Manager at Engie Global Markets. Cristian started his career in portfolio management at Société Privée de Gestion de Patrimoine, an independent wealth management firm. He received a Bachelor Degree in Economics and Management at Université Panthéon-Assas University and a Master of Science in Financial Markets at INSEEC Business School.

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