Pat McKeough responds to many personal questions about investing in stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, an Inner Circle member asked us about an industrial stock that is making its name in several fields, but especially in hydraulic fracturing or “fracking” for the oil and gas industry. As the company’s sales and earnings keep rising, Pat examines the prospects for this stock that has been trading for less than a year. Q: Pat: Can I have your opinion on the outlook for U.S. Silica Holdings? Thanks. A: U.S. Silica Holdings (symbol SLCA on New York; www.ussilica.com) produces commercial silica, which is used to stimulate and maintain oil and gas flow in horizontally drilled wells. It’s also a raw material in a wide range of industrial applications, including glass-making and chemical manufacturing. U.S. Silica operates through two segments: Oil & Gas Proppants and Industrial & Specialty Products. The company operates 13 production facilities across the U.S. and controls 283 million tons of reserves, including about 138 million tons that can be processed to meet the American Petroleum Institute (API) specifications for hydraulic fracturing, or “fracking,” a process that is used to extract oil and gas from shale rock. U.S. Silica first sold shares to the public and began trading on Nasdaq in February 2012 at $17 a share. We generally advise against investing in new issues, for one simple reason: new investments come to market when it’s a good time for the company or its insiders to sell, which may not always be a good time for investors to buy. [ofie_ad]
Rising sales and earnings help prompt a special cash dividend
However, U.S. Silica continues to report rising sales and earnings. In the three months ended September 30, 2012, it earned $0.36 a share, up 71.4% from $0.21 a year earlier. Revenue rose 57.8% to $115.9 million from $73.5 million. The company declared a special cash dividend of $0.50 a share in December 2012. U.S. Silica trades at just 11.9 times this year’s forecast earnings of $1.70 a share. But that estimate could prove optimistic if oil and gas drilling slows. As well, hydraulic fracturing for one well can require more than 20 railcars of silica sand. Supplies could be held up if the recovering U.S. economy causes a shortage of railcars. In the Inner Circle Q&A, Pat examines the opposition to fracking by environmentalists who fear the chemicals may leak into drinking water supplies. He looks at what effect that opposition might have on the Obama administration’s regulation of the oil and gas industry and on the shares of U.S. Silica. He concludes with his clear buy-hold-sell advice on the stock. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members Looking down the road, what do you think will be the single biggest effect of “fracking” on energy prices and the economy? Let us know what you think.
