February 4th, 2022 | 13:09 CET
Varta, Triumph Gold, Barrick Gold: Interest rate turnaround? That's what Goldman Sachs says!
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"[...] Our projects are at the initial, high reward exploration stage. [...]" Humphrey Hale, CEO, Managing Geologist, Carnavale Resources Ltd.
Varta: Growth stocks with headwinds
The narrative of stocks being unattractive relative to interest rate securities after interest rates have risen is true - but only if we leave inflation out of it. Currently, prices in the most important economic areas are rising by around 5%. Even if interest rates were to return to the bank in a year's time, they would not be enough to generate a real return. In this case, equities would therefore remain attractive. But which securities are particularly profitable? In recent years, investors have focused primarily on future technology. The Varta share was one of the most sought-after securities in recent years. The reason is Varta now also focuses on electromobility and is qualitatively well-positioned to score in this new field of activity.
But what is the share price doing? The more concrete the plans become and the closer the production of batteries by Varta really comes, the more Varta weakens on the stock market. Since 2022, the share has been back in double digits. One reason could be that Varta has received a lot of advance praise from the market, and a large part of the valuation relates to profits in the future. But to generate returns in the future, fast-growing industrial companies, in particular, need one thing above all: capital. Thanks to higher interest rates, this is likely to become more expensive in the coming quarters. Even if Varta is not affected by this development, the interest rate fantasy is changing the mood on the market. Growth is out, and substance is in. While such sweeping statements should be taken with a grain of salt, Varta is suffering from the market environment, at least currently, and is of little interest to investors in the short term.
Triumph Gold: Small Company, big leverage
But what can investments look like amid the interest rate turnaround? The analysts at Goldman Sachs have analyzed the Fed's last nine interest rate hike cycles. They found that commodities and stocks from outside the United States performed particularly well during these phases. The shares of gold prospector Triumph Gold fit this pattern. The Company is considered a quiet player in the industry but one that has great potential. In the Yukon, Triumph Gold operates the Freegold Mountain project. In late 2021, the Company released drill results including gold, copper and molybdenum deposits. About half of the drill results from the drill program completed last year are still pending.
Triumph Gold has mining giant Newmont as a shareholder and neighbor. The stock has come under pressure in recent months. One reason could also be that investors have turned their backs on precious metals, given the interest rate fantasy. However, since Goldman Sachs' research on past interest rate hike cycles speaks a different language, and rising interest rates and rising stock prices need not be a contradiction in terms, investors can make a note of Triumph Gold. If gold comes back and Triumph continues to advance, great potential can quickly emerge.
Barrick Gold: No fear of rising interest rates
As soon as the gold price picks up again, Barrick Gold's stock should also benefit. But what can Barrick actually achieve? The probably best-known gold producer is active worldwide and must seek its salvation in acquisitions in order to remain competitive in the long term. The research portal researchanalyst.com dedicated a long article to Barrick Gold several months ago. Among other things, it states: "The bottom line is that the current price level of Barrick stock is an attractive entry opportunity for long-term investors, and, for a number of reasons. First and foremost is the plausible assumption of a rising gold price. The high copper price will also have a margin-increasing effect thanks to the megatrend of electromobility. High earnings and free cash flow can contribute several times to the increase in value of the share: a rising net cash position, higher dividends, potential share buybacks and sufficient financial resources for acquisitions," the experts said last November.
The interest rate turnaround should also not be a major problem for Barrick. Researchanalyst.com points to the importance of nominal returns, i.e. the interplay between interest rates and inflation. While growth stocks are under pressure, the gold market could soon pick up speed. Barrick Gold is one of the first addresses, although the share does not promise much momentum. Those who want to invest speculatively can also take a closer look at Triumph Gold. Especially with these stocks, it makes sense to act anticyclically and not chase a tight market.
Conflict of interest
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