Is Barrick Gold Corp. or Cameco Corp. Attractive Today?

Contrarian investors are constantly searching for unloved stocks that could be on the verge of a recovery.

Let’s take a look at Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) and Cameco Corp. (TSX:CCO)(NYSE:CCJ) to see if one is attractive right now.

Barrick

A massive debt load and falling gold prices nearly killed Barrick a few years ago, but the company managed to pull off an impressive turnaround, and the market might not be fully appreciating the results.

What’s the scoop?

Barrick reduced its debt load from US$13 billion at the start of 2015 to US$6.4 billion by the end of last year, and investors should see the debt drop to US$5 billion through 2018.

Total production has decreased due to assets sales, but the company is focusing on its highest-return properties and still expects gold output to be 4.5-5 million ounces this year at all-in sustaining costs of US$765-815 per ounce. That makes the company the largest global producer with one of the lowest-cost structures in the industry.

Operational challenges are part of the gold-mining game, and Barrick has hit a few speed bumps in the past year, including the temporary suspension of operations at the Veladero mine in Argentina, and the concentrate export ban that impacted a subsidiary business, Acacia Mining plc, in Tanzania. As a result, free cash flow dropped last year compared to 2016, but the company remains committed to growing free cash flow on a per-share basis over the long haul.

Gold has risen from US$1,245 per ounce at this time last year to the current price of US$1,345 per ounce, but Barrick’s stock has not benefited. In fact, the stock is down considerably from $26 to $16 per share.

Given the improvements in the balance sheet and higher gold prices, Barrick might not be getting the respect it deserves today.

Cameco

In early 2011, Cameco was a $40 stock, and uranium traded for US$70 per pound. Then the tsunami hit Japan, and everything changed. Japan shut down its entire fleet of nuclear reactors, and countries around the world took a step back to evaluate their nuclear power programs. As a result, uranium prices went into a tailspin, and the share prices of producers tagged along for the ride.

Today, uranium spot prices are about US$21 per pound, and Cameco trades for $12.50 per share.

The company is also caught up in a battle with the Canada Revenue Agency (CRA) over taxes owed on earnings generated through a foreign subsidiary. The trial for the first batch of years under dispute closed in September, and Cameco expects a decision in six to 18 months from that date. If the company loses the case, it could face penalties and taxes of more than $2 billion.

On the positive side, the long-term outlook for uranium demand is encouraging. Japan is working through the process of getting its reactors back in service, and more than 50 new facilities are under construction around the world. Production cuts implemented in the past seven years could result in a supply squeeze at some point down the road, so there is the potential for a strong reversal of fortunes in the uranium sector.

Is one a better bet?

Both stocks have sold off to the point where they might be attractive contrarian picks for patient investors. Regarding Barrick, you have to be a gold bull to buy any of the producers. If you fall in that camp, the mining giant deserves to be on your radar today.

Cameco offers a shot at some nice upside torque on good news in the CRA case or an eventual turnaround in uranium prices. At this point, however, I would probably wait for the decision on the CRA case before buying the stock.

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The Motley Fool is short shares of Cameco. Fool contributor Andrew Walker owns shares of Barrick Gold.