Connect with us

Recommendations

This Stock Will More Than Double in the Medium-Term

Published

on

Crude oil prices are less than 50% of their 2014 levels but the US shale oil drillers continue to add oil rigs and increase their production. As a result, the Energy Information Administration expects the US crude oil production to reach 10 million barrels per day in 2018. We want to be a part of this shale oil boom.

// -- Discuss and ask questions in our community on Workplace.

Key highlights

  • We want to take part in the shale oil boom through FMSA
  • Frac sand use per well has more than tripled in the last few years
  • US oil producers are adding rigs at a fast pace, which is good news for frac sand companies
  • The demand is expected to grow further until 2022
  • FMSA is a turnaround story and is highly rated by the analysts
  • We believe that the selling is overdone and the stock is ripe for a sharp rebound
  • In the medium-term, FMSA can turn into a multibagger

A direct shale oil play might not be the best way because crude oil prices are stuck between the range of $40 per barrel on the lower end and $55 per barrel on the upper end.

If price drops below $40 per barrel, OPEC jawbones prices higher announcing various measures to curtail supply. On the other hand, as soon as prices cross above $50 per barrel, the US shale oil drillers start drilling at a frantic pace, keeping prices under check.

The producers are therefore unlikely to make a hefty profit. Hence, we shall look for companies that supply items to the shale oil drillers. In this group, we like Fairmount Santrol (FMSA). At the current levels, the stock is a good buy with low downside risk and a huge upside potential. FMSA can turn into a multibagger in the medium-term.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

About FMSA

FMSA mainly supplies high-performance sand and sand based products that are used in the oil and gas exploration industry. They also cater to foundry, building products, glass and sports and a few other markets. However, their main income comes from their sand business.

What is frac sand and why is it used by the shale oil drillers

Frac sand is a high-purity quartz sand that has uniform round grains. It is a tough material, hence, is used by the petroleum industry in the fracking process while producing oil and natural gas from rock formations.

In order to free the oil and gas trapped inside the shale formations, frac sand is pumped into the wells along with water mixed with chemicals and thickening agents. This creates fractures in the rocks through which oil and gas flow into the well.

In this article, we shall also use the term proppant for frac sand.

How much frac sand is used in each well

In 2014, in the Bakken, producers used about 400 pounds of proppant per foot of completed hole. However, in 2017, the proppant use is expected to skyrocket to 1,500 pounds per foot of completed hole. Similarly, in the Permian, in 2014, operators used 800 pounds of proppant per foot, which has increased to 1,900 pounds of proppant per foot in 2017.

As technology advanced, the producers observed that by increasing the proppants, they were able to increase the access to the reservoir resulting in higher oil and gas production.

As a result, the overall consumption of proppant has increased over the past four years and is likely to grow further till 2020. The chart above confirms that the demand for frac sand is here to stay and is only likely to increase further. But, with crude oil prices ruling at less than half of 2014 levels, is the demand sustainable?

US shale oil producers are adding oil rigs

The US shale oil drillers have been undeterred by the range bound crude oil markets. In fact, they have more than doubled the oil rig count to 765 in the week ended August 4, 2017, from the lows of 316 hit in end-May 2016. However, this is still way below the peak oil rig count of 1609, in October 2014.

Nonetheless, due to increased use of proppants per well, the total consumption of sand in 2017 is likely to overtake the peak consumption of sand in 2014, when oil prices were above $100 per barrel. Expectations are for the consumption to continue its uptrend for the next five years, though analysts don’t expect crude oil prices to reach $100 per barrel anytime soon.

Therefore, the visibility for demand is clear. But why do we like FMSA?

FMSA is a turnaround story?

We like the company because it is turning around for good. It has got its act together, reduced its debt and is likely to strengthen further as the year progresses.

In Q2 2017, the company had a net income of $0.05 per diluted share, compared to a net loss of $0.05 per diluted share in Q1 2017 and a net loss of $0.54 per diluted share in Q2 2016.

The company had a huge total long-term debt of $1 251.5 million as of September 30, 2014. However, after reducing its total long-term debt to $845.1 million in Q1 2017, FMSA has further reduced its long-term debt to $796.1 million in the latest quarter. Considering the cash and cash equivalents of $178.5 million, the total net debt of the company is $617.6 million as of June 30, 2017. The company wants to further reduce the net debt to $500 million to $550 million by the end of 2018. This is a positive sign confirming that the company is serious about strengthening its balance sheet.

In the latest quarter, the company has posted impressive growth on all fronts. When compared to the previous year’s quarter, the growth numbers are even more impressive. In Q2 2016, the company had a revenue of $114.2 million and a net loss of $87.8 million.

The company’s performance is improving every quarter.

Expectations of the company for the third quarter and beyond

The company expects to increase raw frac sand prices by $5 to $7 per ton in the third quarter of this year, assuming a constant mix. FMSA expects proppant demand to increase in 2018 to 100 million tons as the producers complete the drilled but uncompleted wells.

In order to capitalize on the increasing demand, the company will launch a capacity expansion at Kermit, Texas to cater to the Permian. They have also reactivated the Shakopee facility, which should begin full production by the end of Q3 2017. With these two facilities coming on line, FMSA’s annual frac sand capacity will increase from 11.9 million tons to a nameplate 15.6 million tons.

What do the analysts think about FMSA?

The consensus 12-month price estimate on the stock is $7.5, with forecasts ranging from $3.7 to $17. Even if the stock reaches the most conservative estimate, it will be a rise of 34% from the current levels.

What are the risks to our investment

No investment is without its risks. Here, the risk is on two fronts. If OPEC and allies don’t extend the production cuts beyond March 2018, crude oil prices can again fall to $40 per barrel. Sustained low prices will affect the drilling activity of the US shale oil producers.

Another concern is overcapacity. With the boom in frac sand demand, many companies are expanding their operations. Therefore, analysts expect the supply to overshoot demand, which will affect the pricing power of the companies.

What do the charts forecast?

The stock is in a free fall, since reaching a high of $13.12 in end-January. From its highs of the year, the stock is down a whopping 80%. We believe that the market has been too harsh and has priced in a very bearish scenario, which is unlikely to play out.

At the current levels, though the stock is in a water fall decline, we expect some sort of support to kick in soon. However, we would prefer to go for a staggered investment approach in this stock. We shall buy 50% of the allocation at the current levels and buy the remaining 50% over the next few weeks, once the stock stops falling and changes its trend from down to up.

This is a medium-term play; therefore, the investors should be ready to hold this stock for more than a year to realize strong gains in it.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
0 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 5 (0 votes, average: 0.00 out of 5)
You need to be a registered member to rate this.
Loading...

4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




Feedback or Requests?

9 Comments

9 Comments

  1. gullyfoyle

    August 14, 2017 at 8:17 am

    thanks Rakesh this is a good summary. I don’t have the expertise to delve much further than the information presented here but the chart does indeed look like a bottomt to me. Thank you for putting it on my radar.

    I’d love to see more of this analysis. Crypto has become a crap-shoot right now and I think a lot of us should be diversifying out of bitcoin.

  2. gullyfoyle

    August 14, 2017 at 8:18 am

    * to specify more of this type of analysis mixing fundamental and technical of stocks with major upside and potentially little downside 🙂

    • Rakesh Upadhyay

      August 14, 2017 at 9:28 am

      Hello gullyfoyle….

      I am glad you liked the piece…..I shall try to search for more such stocks in the future…..

  3. tadej

    August 14, 2017 at 11:46 am

    on which platform i can buy this stock ?

    • Rakesh Upadhyay

      August 14, 2017 at 2:48 pm

      Hello tadej,

      The stock is listed on the NYSE. You can buy it from an account that allows you to trade on the NYSE. Any reputed stock market broker should do.

  4. Inverstor Clouseau

    August 14, 2017 at 10:57 pm

    Nice analysis. I like the mention of the downsides. This one is a buy and forget about it for a while stock.

    • Rakesh Upadhyay

      August 15, 2017 at 7:46 am

      Hello Inverstor Clouseau,

      Thank you. Yes, this should be a good investment over the medium-term.

  5. kyenneti

    August 14, 2017 at 11:04 pm

    Rakesh,
    Thanks for a very detailed post. Would love to see follow-up posts later to this recommendation.

    • Rakesh Upadhyay

      August 15, 2017 at 7:47 am

      Hello Kyenneti,

      Thank you.

      Yes, as and when there is any change in the fundamentals of either crude oil or the stock, I shall update on this recommendation.

You must be logged in to post a comment Login

Leave a Reply

Recommendations

Trade Recommendation: NZDUSD

Published

on

This trade recommendation is setting up quickly and requires prompt attention.

// -- Discuss and ask questions in our community on Workplace.

This is a short term buy trade. The New Zealand Dollar has a very long Hammer candle on the 60 minute chart that has pierced the 6 Day Rolling Pivot Range, the Opening Range and the Daily Pivot Range. This is a bullish setup.

With additional support from the Weekly Pivot Range below the candle we can be confident that this is a high probability trade setup.

So, the action to take is to place a buy order to enter the market long if the price trades above the 0.69440 level. Using the 60 minute chart we will want to buy on a break above this level which will confirm the market wants to move higher. Place your stop just below the Hammer candle low and the profit targets stated below.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

Entry Price: 0.69440
Stop Loss: 0.69170
Profit Targets: First profit target 0.69720. Second profit target is 0.69850.

Disclaimer: Disclaimer: The writer has no positions in the forex markets but does engage in short-term trading of forex and futures.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
0 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 5 (0 votes, average: 0.00 out of 5)
You need to be a registered member to rate this.
Loading...

4 stars on average, based on 56 rated postsI am the founder of VirtuesTrading.com, where traders can learn to use my Virtues Trading System. Formerly a Commodity Trading Advisor, I got my start in the Energy and Precious Metals Options & Futures pits of the New York Mercantile Exchange. I operate on the premise of efficient markets, the management of risk through the analyzation of price action and technical indicators. I have a BA in International Relations from the University of Southern California.




Feedback or Requests?

Continue Reading

Recommendations

Trade Recommendation: GBPUSD

Published

on

This trade recommendation is setting up quickly and requires prompt attention

// -- Discuss and ask questions in our community on Workplace.

The British Pound is sitting on the Daily Pivot Range as support which coincides with the 14 Day Pivot Moving Average. The uptrend line from the last 48 hours is intact and remains supportive.

The price has been in a channel for the last many hours and could be ready for a move out of the sideways trend.

With good support on a narrow channeling with a triangle formation we have a setup with a close stop loss level, which gives us an ideal risk reward ratio.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

So, the action to take is to place a buy order to enter the market long if the market trades above the 1.34370 level. Using the 60 minute chart we will want to buy on a break above this level which will confirm the market wants to move higher. Place your stop at the swing low and the profit targets stated below.

Entry Price: 1.34370
Stop Loss: 1.34120
Profit Targets: First profit target 1.34820. Second profit target is 1.34960.

Disclaimer: Disclaimer: The writer has no positions in the forex markets but does engage in short-term trading of forex and futures.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
0 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 5 (0 votes, average: 0.00 out of 5)
You need to be a registered member to rate this.
Loading...

4 stars on average, based on 56 rated postsI am the founder of VirtuesTrading.com, where traders can learn to use my Virtues Trading System. Formerly a Commodity Trading Advisor, I got my start in the Energy and Precious Metals Options & Futures pits of the New York Mercantile Exchange. I operate on the premise of efficient markets, the management of risk through the analyzation of price action and technical indicators. I have a BA in International Relations from the University of Southern California.




Feedback or Requests?

Continue Reading

Recommendations

Trade Recommendation: USD/RUB

Published

on

The US Dollar/Russian Ruble pair (USD/RUB) started its uptrend in January 2014 when it took out resistance of 34. This triggered the cup and handle reversal pattern on the weekly chart. In fact, the breakout attracted so much momentum that it became parabolic on the monthly chart. The pair’s supercharged velocity catapulted it to as high as 85.8435 in January 2016. In two years, the US Dollar grew by over 152% against the Russian Ruble.

// -- Discuss and ask questions in our community on Workplace.

At this price point, the pair was in overbought territory. Those who followed the trend started to take profits. The selling pressure broke the 70 support in March 2016. This activated the rounding bottom reversal pattern on the weekly chart.

USD/RUB went into a downtrend as it posted a series of lower highs and lower lows until it found the bottom at 55.5345 in April 2017. While the pair has been consolidating since, it appears that a reversal is on the horizon.

Technical analysis show that the US Dollar/Russian Ruble pair is positioning to take out resistance of 65. This is a firm resistance level considering that it is the 61.8% Fibonacci level.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

The good news for bulls is that USD/INR is currently creating a bullish higher low setup at support of 61. With this price action, the pair is creating an inverse head and shoulders reversal pattern on the weekly chart. This would be activated once the pair breaks 65.

The strategy is to buy the bullish higher low as close to 61 as possible. As long as bulls preserve this support, they have all the momentum they need to take out 65 and climb to our target of 75.

The process may take more than six months.

Weekly Chart of USD/RUB on Forex.com

As of this writing, the US Dollar/Russian Ruble pair is trading at 61.1176 on Forex.com.

Summary of Strategy

Buy: Buy the higher low as close to 61 as possible.

Target: 75

Stop: 58

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
0 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 5 (0 votes, average: 0.00 out of 5)
You need to be a registered member to rate this.
Loading...

3.7 stars on average, based on 168 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




Feedback or Requests?

Continue Reading

Recent Comments

Recent Posts

A part of CCN

Hacked.com is Neutral and Unbiased

Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

Trending