Free cash flow yield and the potential dividend a company can pay after capital expenditures are the focus when striving for absolute returns with below-market volatility in conservative, value-oriented investing, says Charles Goldblum, CFA, President and Founder of Hurley Capital, LLC.
“A double-digit free cash flow yield in a stable business should not have much downside. Put a potential catalyst in front of that company, and you are onto something. We also look at operating earnings and operating margins,” he said.
Goldblum points to Barrick Gold Corporation (ABX), a large, publicly traded gold producer in primarily safe jurisdictions, such as the U.S., Canada, Central and South America, as an example of an investment with low volatility and solid returns. He likes Barrick because of its low production costs, expected growth over the next several years and an undemanding valuation.
“In a world where money printing appears to be the intended cure to all ills, we like investing in gold as the unprintable currency. We’re expressing our interest in the sector via Barrick Gold,” Goldblum said. “Barrick’s diversified mines and projects make the firm a simple investment in a gold miner without undue country, project or currency risk. The main risk here is the gold price.”