There’s Gold in Fracking Sand

Post money management career has been an interesting adjustment period for me. In the past, I’d wake up to harrowing news and lament over outsized losses and go about my day servicing clients who thought the world was ending. Now I view the news as an outlet to express myself on the bloggery. If it weren’t for the site, I’d probably play chess all day in the park with homeless people.

A little more than a year ago, one of my top picks was SLCA. I liked the idea of playing the fracking revolution and ripping off drillers, charging them exorbitant amounts of coin for cheap sand. When oil topped out, the sand companies got shredded to pieces–based on the sentiment that fracking was dead and the sand companies were entirely fucked.

Lo and behold, oil has climbed by 100% this year and sand companies are some of the best performers for 2016.

There are 4 companies of note for the space.

FMSA +185%

HCLP +80%

SLCA +70%

EMES +25%

Last week, the Baker Hughes oil rig count reported a net increase of 9 to 325, the largest increase in a year. These numbers are still woefully depressed, coming down from a peak of 1,600 rigs back in 2008. However, the market viewed this as a potential bottom in drilling activity and bid up the shares of sand companies to no end. Putting skepticism aside, these are some of the most heavily shorted stocks in the market. If, indeed, the rig count continues to climb and drilling activity ramps up, with the support of higher oil prices, you won’t find a better sector to invest in.

Naturally, the other side of this story is the fact that a whole slew of drillers will likely go bust inside two years and that the recent 100% increase in crude is unsustainable, considering the fact that supply hasn’t really been destroyed and demand isn’t really increasing. If the global economy is about to slow, like many people believe, you will rue the day you went long sand stocks, post 100% increase in share price.

My favorite of the group is SLCA–but I’d rather drive a stake through my own heart than buy it up here.

One ancillary group of stocks who benefit from an increase in sand activity are the rails. If you’re bullish on sand, you’ve got to like the rails here too. The top rated rail stocks, according to Exodus, are UNP, CSX and GWR. It’s also worth noting that a Trump administration will be lenient on frackers, possibly paving the way for wanton exploration in all sorts of environmentally sensitive areas. Prepare to light your tap water on fire.

If you enjoy the content at iBankCoin, please follow us on Twitter