In a market dancing in bear market territory and with elevated inflation, it certainly doesn't hurt to own a defensive stock or two. And one that fits the bill, with an inflation hedge as a bonus, is Barrick Gold (NYSE: ABX).
Barrick Gold is the world's number one gold producer, with a 2007 production capacity of 8.1 million ounces, and 124.6 million ounces in proved/probable reserves. Analysts see a 20-30% revenue gain in 2008 for ABX, following a solid performance in 2007, due to a higher average gold price and increased production.
What's behind the gold bull market? Three factors: 1) increased use of gold in industrial and commercial applications, 2) rising demand for gold jewelry, and 3) increased reliance on gold and gold shares as an alternative investment. All three trends show only modest signs of abating in 2008. Asia-based jewelry demand looks especially promising in the immediate years ahead. The Reuters F2008/F2009 EPS consensus estimates for ABX are $2.43/$2.60.
The risks? Obviously, an end to the bull market in gold would hurt Barrick's results. Analysts are also keeping an eye on ABX's skilled labor costs.
Stock Analysis: Barrick Gold is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from ABX's shares. Stop Loss if you were to purchase shares in this company: $28.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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