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U.S Silica Holdings: One Of Our Recent Favorite Buys

|About:U.S. Silica (SLCA) Includes:CARBO Ceramics Inc. (CRR)

Over the last week, we have initiated a position in U.S Silica Holdings (NYSE:SLCA). The future is bright for this young company and we have initiated a position as we believe the price can reach new highs over the next few weeks. This article will explain why we like SLCA, both technically and fundamentally.

The story

SLCA is a leading silica sand supplier with a focus on performance materials that are essential to modern living. SLCA largest end market is the oil and gas industry which uses the silica as "frac sand". This sand is injected with water under high pressure in order to generate fractures in the rock. These fractures improve the well's oil and gas output. SLCA also works in wind-powered and solar energy helping in cost-effective manufacturing. Geothermal wells are also more efficient due to improved transfer. SLCA is a leading producer of industrial minerals including sand proppants, whole grain silica, ground silica, fine ground silica, calcined kaolin clay and aplite clay.

Last earnings report

Here are some key highlights:

"The first quarter of the cutting was very strong for our company and we posted record revenue driven by strong performance in oil and gas and we again delivered EBITDA at the high end of our guidance range specifically on a year-on-year basis.

Quarterly volume increased by 8% to 1.9 million tons while revenue climbed over 19% to $122.3 million. On a sequential basis volume was flat in ISP and up 17% in oil and gas.

Adjusted EBITDA of $38.8 million increased 4.9% year-over-year and was flat sequential."

"We expect profit demand growth to outpace rig count growth as the enhanced efficiency of those rigs drive growth in both wells drilled and stages per well".

Onto the numbers:

Revenue was up 19% year over year. Basis revenue for the oil and gas industry grew 37% to $73.6m. Estimates came in at 36c per share.

Fundamental analysis

- Market capital of $1.25b

- Float of 45m shares after the recent secondary offering on June 3rd.

- There is a massive amount of shorts. 12.9m shares are short, around 28% of the float.

- Cash in hand of $42m plus the recent offering of shares that resulted in another $196m approximately.

- 32% of the float is held by insiders.

Technical analysis

Both the daily, weekly and monthly charts show bullish action.

Let's discuss the daily chart. The 50 day moving average is above the 200 day. Stochastics and Relative Strength Index are both on an uptrend. A base has been forming over the last little while and once this breaks $24 we expect new highs soon.

The weekly chart shows more of the same bullish action. We believe the stock is in an early first stage or ipo primary base stage since it has only been trading for 2 years. The 10 day and 20 day moving average are rising and the price is above the respective values showing bullish action. We believe a cup and handle setup is forming with a right sided base to high 20s to occur soon.

(click to enlargeConclusion

We believe SLCA is very cheap at these levels. The fundamentals together with the technical analysis remain very strong. The high percentage of float being short makes us believe that a short squeeze can take this stock to new highs within the next few weeks, especially if earnings are strong like the last quarter. Furthermore, a company in the same field, Carbo Ceramics (NYSE:CRR) showed some very impressive numbers recently beating estimates by 5c and we believe this bodes very well for SLCA's potential. The oil and gas industry continues to boom, and we believe SLCA is poised for continued growth.

Disclosure: I am long SLCA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Stocks: CRR, SLCA