U.S. Silica Could Rally Alongside Crude

Nov. 19, 2018 2:11 PM ETU.S. Silica Holdings, Inc. (SLCA)13 Comments
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Individual Trader


  • US Silica looks undervalued.
  • Its share price has been adversely affected due to the steep slide in crude oil.
  • We believe a yearly cycle low may be imminent in crude which should be a strong tailwind for US Silica.
  • This idea was discussed in more depth with members of my private investing community, Elevation Code. Start your free trial today »

We wrote about this stock back in May when we encouraged investors to wait for a swing before going long. As the chart shows below, though, shares of U.S. Silica Holdings, Inc. (NYSE:SLCA) have been in a sustained downtrend since then. We may though have a bottom on our hands especially considering the slump also in crude oil over the past while. US Silica now for the first time since May has printed a potential double bottom which has resulted in a significant higher high. Buying volume, though, was missing, which still raises doubts whether the bottom is in.

However, when the initial article was penned back in May, SLCA was trading north of $30 a share. The share price has literally been cut in half since then. Silica's book and sales multiples are both now under 1. The dividend is now over 1.7%, and the cash flow multiple has dropped to 3.6. These numbers are definitely "value play" numbers as they are also backed up by a balance sheet where the shareholders' equity still remains larger than the firm's interest bearing debt by over $100 million.

Despite prices for frac sand proppant falling due to new supply entering the equation, we still maintain the fundamentals remain sound for US Silica. We saw this in the third quarter where volumes rose by 10% which offset some of the damage being done by weaker pricing. This company to us is a value play and a play on the future price of oil. The other wildcard is the dividend which we do not see under threat due to how much larger the firm's profits are compared to its dividend pay-out. Ultimately, we see crude oil prices going higher which will over time increase demand for the company's sand. Here is how we see the price of oil playing

This article was written by

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https://individualtrader.netMy name is Jack Foley and I primarily write and research investment commentary as well as trade the markets. I'm Irish but live in Madrid, Spain with my beautiful wife and 2 children. I believe to be successful at this game, one has to have real passion for the markets and be constantly reading and researching material. From fundamentals analysis to technical analysis, options or futures, income or capital gain, long term trading or day trading, there is something for everyone in the markets depending on one's respective goals. "Starting with the end in mind" is a great mindset to start your investment career with respect to ascertaining exactly what you want to get out of the markets. Write down what you want and how quickly you want it. Therefore depending on the capital you are starting out with, you will then know what levels of risk you need to take. Whatever doubt or query you may have, I'm here to help. Shoot me an email in the contact tab and I'll come back to you as soon as possiblehttps://seekingalpha.com/author/individual-trader/research

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SLCA over the next 72 hours. 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.

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