August 10, 2022, Rio Tinto Group (NYSE:RIO) and Barrick Gold Corporation (NYSE:GOLD)
With gold rallying, consider these two big-league undervalued miners the best stocks to buy now.
Ahead of the critical CPI inflation report and a warning from chipmaker Micron, tech stocks fell hard on Tuesday (August 9, 2022). While the Dow and S&P only fell 0.2% and 0.4%, respectively, the Nasdaq weighed the market down and tumbled 1.2%. Amidst this uncertainty and continued geopolitical tensions, gold broke past its 50-day moving average and hit a two-month high. With catalysts potentially pushing the spot price higher, consider Rio Tinto Group (NYSE:RIO) and Barrick Gold Corporation (NYSE:GOLD) the best stocks to buy now.
Rio Tinto and Barrick Gold are two of the largest precious metals miners in the world. Both stocks are not only potential inflation and recession hedges. Both also may offer protection from geopolitical and domestic political issues, which only appear to be heating up. After all, there’s a reason why gold is often called the “crisis commodity” and why gold prices commonly rise the most when confidence in governments is low.
These prominent metals & mining industry players also boast strong fundamentals, long-term returns, deep value, and substantial analyst upside.
There’s a reason why central banks always maintain vast amounts of gold reserves. There’s a reason why Jeff Currie, Goldman Sachs global head of commodities research, said, “it’s a perfect storm for gold right now.”
That’s why Rio Tinto and Barrick Gold are the best stocks to buy now and the best stocks to buy long-term.
Rio Tinto Group (NYSE:RIO)
With gold and European stocks on fire, the UK-based mining giant offers deep value and a potential 25+% upside.
Along with gold’s recent rally, European stocks continue to hover around seven-week highs. With geopolitical tensions pushing gold’s spot price higher, coupled with still red-hot inflation, Rio Tinto looks like one of the best stocks to buy now.
In America, economist Mohammed El-Arian, recently said the Fed must ‘break this economy’ to rein in inflation because of its inability to act quickly. In the U.K., Rio Tinto’s home base, inflation is even worse.
Yet, despite these catalysts and great fundamentals, Rio Tinto sits -27.57% below its highs as a deep value play.
Despite a Challenging Environment, RIO’s Catalysts are Mounting
Rio Tinto had an underwhelming H1 2022 update. However, there’s a reason why Finbox projects Rio Tinto’s revenue to see a 5-year CAGR of 13.5%.
It’s because despite challenging market conditions, RIO continues to expand its footprint worldwide, positioning itself as a premier, first-class mining company.
Consider its following moves over the last few months.
- Opening its most technologically advanced mine yet in Australia.
- Becoming the first producer of scandium oxide in North America.
- Supplying the world with several crucial minerals, Russia produces such as aluminum and iron ore. Rio recently formed a joint venture with the Guinea government and Winning Consortium Simandou to develop the world’s largest untapped iron ore deposit.
- Attracting several offers to build 4 gigawatts (GW) of wind and solar farms to power its aluminum operations in Australia.
- Completing the sale of its Cortez Gold Royalty for $525 million in cash.
Despite Slashing its Dividend, Rio Tinto Offers an Outstanding Yield and Fundamentals at a Deep Discount
Although the RIO stock has rallied nicely as of late, it still sits at a desirable level as one of the best stocks to buy now.
Opportunities to buy a stock with an outstanding dividend and fundamental backbone at a discount like this don’t come around often.
Consider the following multiples, which show how deeply undervalued it is.
- 7x trailing P/E
- 2x forward P/E
- 0x price-to-book
- 8x forward price-to-sales
- 7x trailing price-to-sales
Furthermore, RIO’s cash flows can sufficiently cover interest payments, and its 14.7% free cash flow yield reflects this.
Additionally, the following margins reflect a solid fundamental backbone.
Lastly, RIO’s shareholder yield and dividend are two reasons it’s one of the best stocks to buy now.
First, its 13.2% shareholder yield is outstanding and compares very favorably to the sector and many key competitors.
Moreover, although RIO recently cut its dividend, it remains one of the best dividend payers in the entire materials sector. A 9.7% dividend yield is still quite strong, especially if it sees a 38.0% 5-year CAGR, as Finbox forecasts indicate.
Although Analyst Activity Has Been Light, Don’t Sleep on RIO’s 25.51% Potential Upside
Analyst activity over the last 3 months has been relatively quiet for RIO. However, 4 Wall Street analysts still offered a 12-month price target showing significant upside. It currently has a high price target of $92.00, a low of $62.00, and an average of $77.00. The average price target represents a 25.51% upside from its August 9, 2022, closing price of $61.35.
RIO’s year-to-date low and high are $53.83 and $84.69, respectively.
Barrick Gold Corporation (NYSE:GOLD)
This Canadian gold miner could have a 70+% upside based on a BMO price target hike.
Today’s theme is gold miners. We talked about one of the best stocks to buy now from a European angle, but what about the North American perspective? North American equities have also seen considerable momentum since mid-June, and Barrick Gold could be one of your best bets for the rest of the year and beyond.
Barrick Gold is a Canada-based miner, explorer, developer, and producer of gold and copper properties, primarily in North America, Central America, and Africa. It has similar selling points as Rio Tinto, such as its fundamental strength, dividend, and leverage to gold’s upside.
However, here’s what it provides that RIO doesn’t. More profound value and more recent analyst upside. Barrick currently sits -36.94% below its highs, and a BMO price target from Tuesday (August 9, 2022) pegs it with an over 70% upside.
That clearly makes it one of the best stocks to buy now.
A Recent Earnings Beat That Shows Growth Potential
Another difference between Barrick and Rio Tinto is Barrick’s latest earnings report. While Rio’s underwhelmed, Barrick beat on both its bottom and top line estimates. Barrick’s Q2 EPS came in at $0.24, beating analysts’ consensus estimates of $0.22 by $0.02. Revenue also came in at $2.86 billion for the quarter, exceeding analysts’ expectations of $2.85 billion.
Several forecasts expect Barrick to use this earnings report as a springboard for bigger things to come, including earnings that could grow by 10.38% in the coming year and revenue that could see a 7.0% 5-year CAGR.
Multiples Remain Cheap, Fundamentals Remain Strong, and Dividends Could Keep Growing
While Barrick’s P/E multiples aren’t as cheap as Rio Tinto’s, several other multiples look more undervalued, especially with its dividend poised to grow instead of getting slashed.
Barrick currently trades with a 14.5x trailing P/E, 16.0x forward P/E, and 1.2x price-to-book, and its valuation reflects a robust 6.1% free cash flow yield.
It shouldn’t be a shock that GOLD is a prominent player in the metals & mining industry whose cash flows can sufficiently cover interest payments.
We can discuss its shareholder yield and consistent dividend as a reflection of its fundamental strength and a significant driver of it being one of the best stocks to buy now.
While its 5.3% shareholder yield is solid, as is its 6.3% dividend yield, you have to dive deeper into its dividend to see why it’s so strong. On the surface, RIO has higher yields for both. But RIO did recently cut its dividend. Barrick, in comparison, has a lower payout ratio and a much higher dividend growth outlook. Forecasts see its dividend growing a whopping 116.9% at a 63.1% 5-year CAGR.
While many of RIO’s fundamental margins are considerably stronger than Barrick’s, Barrick’s outstanding 35.0% operating margin is nothing to overlook.
A Recent BMO Price Target Sees a 70+% Upside for Barrick
In total, 8 Wall Street analysts over the last 3 months, offered a 12-month price target for GOLD. It trades with a high price target of $28.00, a low of $19.00, and an average of $24.72. The average price target represents a 50.27% upside from August 9, 2022’s closing price of $16.45.
BMO Capital Markets, however, sees considerably more upside. On August 9, 2022, it kept an OUTPERFORM rating and boosted its price target from $27.00 to $28.00- a street high. This price target represents a 70.21% upside.
GOLD’s year-to-date low and high are $26.07 and $14.80, respectively.