Morgan Stanley Prefers Newmont Mining Over Barrick Gold

Mean reversion can be a powerful trading tool, particularly with pair trades. One Wall Street analyst said it’s still too early to expect a mean reversion bump in underperforming Barrick Gold Corp (USA) ABX.

The Analyst

Morgan Stanley analyst Piyush Sood downgraded Barrick from Equal-Weight to Underweight and lowered the price target from $14 to $12. Sood upgraded Newmont Mining Corp NEM and raised the price target from $37 to $40.

The Thesis

In the past year, Newmont stock is up 13.7 percent, while Barrick stock is down 19.3 percent.

Barrick's underperformance will likely widen even more throughout the remainder of 2018, Sood said in a Tuesday note. 

“We prefer NEM over ABX, driven by NEM's stronger execution, steadier production profile, deeper and relatively de-risked project pipeline, better reserve life and lower leverage," the analyst said.

Morgan Stanley forecast gold prices to continue to trade mostly sideways for the rest of the year, a dynamic that favors Newmont over Barrick. In addition, Sood said downside risk to gold prices will hit Barrick harder.

Newmont’s falling production from existing mines has been offset by its growth projects, and the company has a long track record of successful investments, the analyst said. At the same time, Barrick’s production from existing mines had been dropping, but the company has chosen to focus on improving its balance sheet rather than investing in new projects, he said. 

Price Action

Newmont shares were up 0.34 percent at the time of publication Tuesday, while Barrick shares were down 0.53 percent. 

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