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.

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.

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: NavCoin

Published

on

The NavCoin/Bitcoin pair (NAV/BTC) breached resistance of 5,000 satoshis on September 22, 2018. This triggered the breakout from the rounding bottom pattern on the 4-hour chart. The price action attracted breakout traders and trend followers. This sparked a strong rally to 9,230 satoshis on the same day.

Of course, the strong rally was met with fierce selling. After all, NAV/BTC was extremely overbought on the 4H RSI. As bottom pickers and breakout traders sold positions, the market dropped to as low as 4,290 satoshis on October 12.

Even though the market went below the breakout of 5,000 satoshis, it would have maintained its bullish momentum if not for the massive dumps over the last two weeks. The good news is that NAV/BTC has managed to maintain the midpoint of the current range amidst the selloff.

Technical analysis shows that NAV/BTC is preserving support of 4,000 satoshis. We believe the market will hold this level for the following reasons.

First, we are seeing a bullish divergence on the 4H RSI. This suggests that bulls are beginning to gather strength at these levels.

In addition, you can see long wicks below the daily candle’s body every time the market tries to go below 4,000 satoshis. This is a sign that participants are rejecting attempts to go below the support.

Lastly, the thin volume over the last few days favors the bulls. This means that participants are holding on to their positions. However, buyers must show up soon or else those who are holding might be tempted to sell considering market conditions. Thus, it is important to watch volume levels.

The strategy is to buy the dip, as close to 4,000 satoshis as possible. If bulls hold the line, they will likely inspire a rally to the top end of the current range at 5,000 satoshis. The process may take a month.

Daily Chart of NavCoin/Bitcoin on Binance

As of this writing, the NavCoin/Bitcoin pair is trading at 4,270 satoshis on Binance.

Summary of Strategy

Buy: As close to 4,000 satoshis as possible.

Target: 5,000 satoshis.

Stop: 3,890 satoshis.

 

NOTE: a satoshi is the smallest unit of Bitcoin, which equals to 0.00000001 BTC.

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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 271 rated postsKiril is a CFA Charterholder and financial professional with 5+ 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

Recommendations

Trade Recommendation: Bitcoin Gold

Published

on

The Bitcoin Gold/Bitcoin pair (BTG/BTC) took out resistance of 0.0045 on November 4, 2018. The breach triggered the breakout from the inverse head and shoulders pattern on the 4-hour chart. Also, the breakout looked valid as Bitcoin Gold had a volume buzz that’s over 410% of its daily average.

The bullish price action attracted traders and investors that were observing the pair on the sidelines. This generated a strong rally to as high as 0.005479 on November 7. At that price, Bitcoin Gold showed signs of weakness. The 4H candle created a long wick on top of its body suggesting the presence of sellers. In addition, a bearish divergence was spotted on the 4H RSI.

These indicators sparked more profit-taking. To make matters worse, the November 14 crypto carnage increased the selling pressure further. As a result, Bitcoin Gold breached support of 0.0045 and dropped to as low as 0.004281 on November 14. However, even in the midst of bearish rampage, Bitcoin Gold continued to show immense strength.

Technical analysis shows that BTG/BTC has managed to reclaim support of 0.0045. With this price movement, the dump below that level appears to be a bear trap. This ignited a rally to 0.005099 today, November 19. It retraced a bit since, but this presents an opportunity.

If Bitcoin Gold wants to keep its bullish trend, it needs to preserve support 0.0045. This would confirm the bear trap and will likely propel the market to the top end of the range.

The strategy is to buy the dip as close to 0.0045 as possible. If bulls defend the support, then we can expect BTG/BTC to rally to our target of 0.0055. The process may take a month.

4-Hour Chart of Bitcoin Gold/Bitcoin on Binance

As of this writing, the Bitcoin Gold/Bitcoin pair is trading at 0.005054 on Binance.

Summary of Strategy

Buy: As close to 0.0045 as possible.

Target: 0.0055

Stop: 0.0043

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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 271 rated postsKiril is a CFA Charterholder and financial professional with 5+ 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

Recommendations

Trade Recommendation: Haven Protocol

Published

on

We’ve been following Haven Protocol (XHV/BTC) from some time now, after we saw its bullish potential. It skyrocketed from 0.0001371 on October 12 to as high as 0.00056 on November 12, 2018. In as little as one month, Haven Protocol grew by over 308%.

Though we were tempted to recommend long positions during this meteoric rise, we knew better than to chase an incredibly bullish altcoin. We’d rather wait for a price level that offers a very good risk to reward ratio. Good thing we did because XHV/BTC breached support of 0.000417 on November 15. This triggered the head and shoulders reversal pattern on the 4-hour chart.

With this price action, Haven Protocol is officially in a downtrend. However, there’s a good trade opportunity that’s presenting itself.

Technical analysis shows that XHV/BTC is fighting hard to protect support of 0.00034. Bulls must defend this level at all costs to keep the market from becoming extremely bearish. If Haven Protocol breaks this level, it might trigger a waterfall event that can send the market to the ultimate target of the head and shoulders pattern of 0.000295.  

We believe that bulls have a great chance of holding this support for several reasons. First, volume is starting to pick up. If bulls want to keep market control, buyers must show up. Otherwise, many participants might get jittery and close their positions and thus increase selling pressure. So, watch out for volume.

Next, the 4H RSI appears to be respecting support of 35. The market has never given up this support ever since climbing above it on October 15. Therefore, we can expect bulls to gather significant momentum at this level.

The strategy is to buy as close to 0.00034 as possible. As long as the market is above this level, it has the momentum to rally to our target of 0.000417. Take that out and the next target is 0.000489.

The process may take more than a month.

4-hour Chart of Haven Protocol/Bitcoin on Bittrex

As of this writing, the Haven Protocol/Bitcoin pair is trading at 0.0003835 on Bittrex.

Summary of Strategy

Buy: As close to 0.00034 as possible.

Target: 0.000417 first and then 0.000489.

Stop: 0.000323

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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 271 rated postsKiril is a CFA Charterholder and financial professional with 5+ 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 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