Barrick & Freeport: Yield and value

One of my favorite quotes from legendary Fidelity Magellan fund manager Peter Lynch is: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves."

Meanwhile, we have added to our positions in Barrick Gold (ABX), a giant gold mining company, and Freeport-McMoRan (FCX) is the world's largest publicly traded copper producer, and the 8th largest gold producer.

Barrick Gold operating and develops projects in the U.S., Canada, South America, Australia and Africa. Though the April pullback in the precious yellow was not part of the equation, ABX beat analyst estimates in the first quarter by six cents, earning $0.92 per share on sales of $3.4 billion.

In addition to announcing the continuation of a $0.20 per share quarterly dividend, CEO Jamie Sokalsky said, "We generated healthy operating cash flow of $1.1 billion. Gold production was 1.8 million ounces at better-than-targeted all-in sustaining costs of just over $900 per ounce and total cash costs of $561 per ounce."

The stock sold off far more than its peers last month, due in large part to a legal ruling suspending construction on a critical Chilean property, but we believe that Barrick will find a solution with the local government that allows both continued development of the claim and environmental protection.

Now trading for 5 times earnings while yielding more than 4%, we think investors are woefully undervaluing ABX, which now mispriced near the 2008 Financial Crisis lows.

While a collapse of precious metal prices in April pulled the shares of Freeport-McMoRan down to levels we haven't seen in more than a year, we believe that the pricing challenges are unlikely to persist over the longer term.

The company has made significant headway in recent quarters managing capital expenditures, issuing low interest rate debt and reducing operating costs of its copper mining, where they have been relatively high.

Additionally, the pending acquisitions of oil & gas concerns Plains Exploration and McMoRan Exploration will provide synergies and help diversify the revenue stream. We believe that those deals are transformational in that commodity and country risk will diminish over time.

We like that Freeport already has a diverse revenue stream, both in geography and material. The shares currently trade for 10 times consensus earnings estimates and offer shareholders a dividend yield of 4%.