How to Play Barrick Gold Stock Ahead of Today’s Earnings

Advertisement

When it comes to gold and publicly-listed miners, the ticker for Barrick Gold (NYSE:GOLD) stands out above the rest. But as an investment with earnings on tap, ounce-for-ounce exposure to GOLD stock shines with help from the options market. Let me explain.

How to Play Barrick Gold Stock Ahead of Today's Earnings

Source: Piotr Swat / Shutterstock.com

It’s been a good year to be invested in gold. The listed SPDR Gold Trust (NYSEARCA:GLD) is up about 12%. At the same time, the S&P 500 is off by roughly 11%. And of course, today’s draw-down in market leaders such as Microsoft (NASDAQ:MSFT), Home Depot (NYSE:HD) and others was a good deal worse not too long ago.

Moreover, it’s been a windfall year for investors in precious metals play and large-cap Barrick Gold.

Despite potential production and supply chain risks tied to the novel coronavirus and not unlike those facing other companies, most mining stocks have rallied. Still, Barrick Gold remains one of the standouts in the industry.

In 2020 shares of Barrick are up 45%. That’s nearly four-fold the returns offered in the underlying metal. What’s more, the rally could continue today. The company releases its Q1 results before the market opens. Still, there are challenges off and on the chart which might impede progress for bulls in the near-term.

Ahead of the release, Wall Street is forecasting profits of 16 cents. That’s five cents above last year’s same quarter earnings per share. Similarly, revenues are expected to balloon by about 30.5% on sales of $2.74 billion.

It sounds bullish but the whisper number of 17 cents demands slightly more out of GOLD stock. As well, investors did receive a bit of guidance in mid-April when the company announced preliminary estimates.

All told and given Barrick Gold’s relative outperformance, the need for an earnings beat is likely required to make what’s been a friendly trend, even friendlier going forward. That point is also being reaffirmed on the price chart right now.

GOLD Stock Monthly Price Chart

Source: Charts by TradingView

Aside from Barrick likely needing an actual earnings beat in order to rally from current levels, technically speaking GOLD is positioned for a modest correction. This year’s strong returns and very rapid gain of nearly 120% to relative 7-year highs from its March 20 low puts the stock in a precarious position within its bullish trend.

Shares are currently testing Barrick’s 50% retracement level from its 2011 all-time-high. The stock is also overbought. Stochastics and shares trading outside the upper Bollinger Band are warnings the Fibonacci resistance being challenged has an increased chance in the short-term of holding.

Still, timeless conversations among traders of overbought conditions begetting more of the same, also confirm the limitations of stock charts and sometimes costly ones at that.

The Bottom Line

Appreciating overhead resistance in larger friendly trends is often eventually overcome and how Barrick Gold can offer investors diversification within their portfolios, I’m agreeable to long exposure using the stock’s options market.

One simple, limited and reduced risk idea that’s caught our eye is the September $25 / $35 bull call spread. With shares near $27.75 the partially in-the-money spread is priced for $3.60.

This vertical strategy ensures a stock risk of about 13% is ironclad, even if Barrick’s mostly bullish-looking price chart fails. For some traders that could mean the ability to buy shares on larger price weakness should it occur and if they’re agreeable with that type investment approach.

More optimistically, with more than four full months to participate in a friendlier Barrick Gold trend and spread gains that could approach 180% on a 26% rally in shares, this bullish investor’s risk profile looks to shine comparatively.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2020/05/barrick-gold-stock-ahead-today-earnings/.

©2024 InvestorPlace Media, LLC