In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:
UNH, COO, XBI, IBB, JLL, BCR, AVB, PSA, LAD, PCYC, GWPH, CELG,
NEW DIRECTIONAL CALL PLAYS
U.S. Silica Holdings, Inc. - SLCA - close: 61.15 change: +1.56
Stop Loss: 57.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.42 million
Entry on August -- at $---.--
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
We are bringing SLCA back after some post-earnings volatility.
There is a new gold rush going on for sand! America's shale oil and gas boom has created another boom for sand producers. Energy companies use hydraulic fracking to mine oil and gas out of tight shale formations. This fracking technique blasts millions of gallons of water at high pressure into shale rock where the oil and gas is trapped. These wells can cost between $4 million and $12 million each. In order to maximize their returns drillers use proppants to help "prop" open these minute cracks in the shale rock to help the oil and gas escape to the surface.
The cheapest and one of the most effective proppants has been fine sand. SLCA has been providing sand for industrial use for over 100 years. The company currently has 297 million tons in reserve. Oil and gas industry demand for proppants is expected to rise +30% between 2013 and 2016. That might be underestimated. The energy industry consumed 56.3 billion pounds of sand for fracking in 2013. That's up 25% from 2011.
According to SLCA they saw a +45% increase in demand for their sand. SLCA's CEO reported that some hydraulic fracking wells have doubled their use of sand from 2,500 tons per well to 5,000 tons. There are some wells using up to 8,000 tons.
Demand has been so strong that SLCA is actually sold out of some grades of sand and they're raising prices (about +20%) on non-contracted silica. SLCA believes demand for their products will rise another 25% this year alone.
Wall Street has taken notice of the dynamics of the sand industry and shares of SLCA have soared from their February 2014 lows. It may not be a coincidence that the stock was added to the S&P 600 smallcap index in February this year.
SLCA's most recent earnings report was July 29th. Wall Street expected a profit of $0.47 a shares on revenues of $189.7 million. SLCA beat estimates with a profit of $0.55 and revenues soaring +58.5% from a year ago to $205.8 million.
The company said sales were up sharply both from a year ago and from the first quarter. Management raised its 2014 earnings guidance.
Currently shares of SLCA are hovering just below resistance in the $61.75 area. Tonight we're suggesting a trigger to buy calls at $62.05.
We are not setting an exit target tonight but Point & Figure chart for SLCA is bullish with a $69 target.
Trigger @ 62.05
- Suggested Positions -
Buy the DEC $65 call (SLCA141220C65) current ask $4.10
Option Format: symbol-year-month-day-call-strike