U. S. Silica Holdings (SLCA-N)

(A Top Pick September 15/17 Down 21%). They got out of this one as they saw infrastructure constraints in the Permian basin. He expects this to yield good returns into 2020 as the bottlenecks are mitigated.

(A top pick July 19/17, down 30%) Was lowest risk frac sand producer but did not work out. He exited last year.

(A Top Pick September 15/17 Up 6%) He is not in the frac sand sector anymore. Tightness in the sector did materialize, but he fears too rapid a build out of new equipment.

(A Top Pick June 19, 2017. Down 19%). The bull thesis on fracking sand has played out. There has been a chronic worry about too much regional supply. There are very few active analysts for this category, so the stock prices whip around unnecessarily. Sentiment is horrific. He would rather own pumpers, which are also severely undervalued but without the fear of oversupply.

Trading at 9x earnings. These are big manufacturers now supplying the fracking industry. This business will continue to do very well as the U.S. drills more shale wells. These companies will do just fine. Will grow.

(A Top Pick May 23/17, Down 33%) A disaster last year for all sand names, due to concerns of overcapacity in Texas. He sold his shares at end-2017, seeing better returns in the pumpers than the sand stocks.

Recommended it on Jan. 17. Known for fracking sand. Recommended it when it was starting to move up a little. Bought it for $38 then it immediately fell, so he sold, losing around 15%. Likes the story now.

Trading in the middle of 5-year range. Fracing in the US requires a lot of silicone sand. Trading at about 11X earnings. He was really interested when he saw a big move from one side of the boat to the other side of the boat by the street. It’s coming up as a Top Pick in a lot of reports. As long as they maintain their pricing power and as long as activity stays high in rig counts in the US, it is supported. Dividend yield of 0.7%. (Analysts' price target is $43.)

A big supplier of sand that fracers use for drilling. This is what he would put on the “too hard to understand” pile, because sand has a relatively low average selling price, which means it is very sensitive to what freight costs are for moving it. If you were to get involved, it should be relatively short-term.

EPS has gone from negative to positive, but the stock is still lagging. The market concern isn’t around today, but about next year. The demand for frac sand is growing hyperbolically because there has generally been a strong relationship between using more proppants on a well that you frac and getting better results. Texas has not been an area of sand production, and due to transportation being 65%-70% of the overall sand costs, there is a financial motivation to try to find local sand sources. The concern has been that there will be too much supply being built in Texas, that will crush the price of 100 mesh and will trickle down reducing the price to $40.70. He is very bullish on frac sand but has taken his weight down because of the bogeyman of too much supply for the next couple of quarters, so they may lag. (See Top Picks.)

A fracing sand provider. Down 50% year to date on concerns of production coming out of Texas. While volumes are going to be increasing, when you cancel the type of sand coming from Texas, combined with demand growth overall, there will not be that massive glut everybody is concerned about. The stock is reflecting a doomsday scenario, which there is no basis of reality in. Trading extraordinary cheaply. Very, very strong balance sheet. Dividend yield of 0.9%. (Analysts’ price target is $40.)

The frac sand market is 75 million tons this year, growing to 110 million tons next year, growing to 140 million tons in 2019, equalling 65 million tons of demand growth. Supply growth will be anywhere from 30 million to 40 million. The price insensitivity of producers to an increase in frac sand price means that pricing will go up month after month, quarter after quarter for the next couple of years. This is the best positioned frac sand company. Dividend yield of 0.8%. (Analysts’ price target is $54.25.)

The safest and least volatile (relatively!) way to be exposed to the frac sand market in the US. Oil and gas companies are approaching these sand companies asking for 5 years of supply, and are guaranteeing them margins of $50 per ton, which is double what this company has guided to. (Analysts’ price target is $63.)

For frac sand, this is a company with the best balance sheet. Looking at 2018, there is going to be a ramp in terms of both volumes and product pricing power. A lot of frac sand mines have been operating at around 75% capacity. While the number of rigs and wells being drilled has fallen, the nature of the wells has changed, and companies are drilling longer laterals and fracing it more so there are more stages. For one well, you can use 200 train loads of frac sand. The demand for frac sand is increasing now, and could exceed current capacity so that new mines will be brought on. Although it is trading at the cheapest valuation, it is not cheap.