US Silica (SLCA)
U.S. Silica (SLCA): Leading provider of sand for frackingBy Michael Cintolo, Chief Analyst, Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 12/5/13 Sign up for Cabot Wealth Advisory—it's free
One name I've been watching closely for a couple of months is U.S. Silica (SLCA), a leading provider of sand for the fracking of oil and natural gas wells. It doesn’t sound exciting, but there are big barriers to entry here, and not only is the number of wells being fracked rising nicely, but so is the amount of sand used per well, which results in more output.
Here’s what I wrote about the company in Cabot Top Ten Trader on November 18:
“We remain impressed with both the stock action and the fundamental outlook for U.S. Silica, which is one of the dominant suppliers of fracking sand (which is very specialized, with only a few players in the market) to the energy industry; not only does the company have the product but management has shown great ability to ink transportation deals with various railroads, giving U.S. Silica exposure to every major shale area in the U.S. The company still gets over a third of its revenues from sand used in industrial products like glass, but that segment is basically stagnant. By contrast, its oil & gas-related revenues make up two-thirds of revenues and rose 37% in the third quarter (prices were flat, but tons sold increased 36%), and more than half of those sales were delivered via its rail deals. As fracking activity continues to rise, even more exciting is that the amount of sand used per well is greatly increasing; many drillers are boosting results by increasing the number of fracking stages and sand usage per well. Management has a goal of doubling profits by 2016, but we think that could prove conservative as long as energy prices hold up. Combine the gradually accelerating sales and earnings growth, the buoyant earnings estimates ($2.17 per share next year, up 37%), the reasonable valuation (21 times trailing earnings) and the modest 1.5% dividend, and there’s a lot to like here.”
Chart-wise, I like how SLCA broke out of a first-stage base (its first real base since coming public in February 2012) and rose a whopping 40% in just three weeks. Such an initial burst is often a precursor of bigger and better things.
Since that rally, the stock has consolidated nicely, trading in a wide, but sideways, range for six weeks. The 50-day moving average has nearly caught up, and I think the stock could be nibbled at here, with a stop near 30. And a big push above 37 would be reason to buy a little more.
For more updates on SLCA as well as additional momentum stocks recommended in Cabot Top Ten Trader, click here now.
|U.S. Silica Holdings (SLCA)
8490 Progress Drive, Suite 300
Frederick, Maryland 21701
Index Membership: N/A
Sector: Basic Materials
Industry: Industrial Metals & Minerals
Full Time Employees: 785