The year of 2016 ended on a negative note as U.S. stock markets pulled back in the final week of the year. The Dow Jones fell 0.77%, the S&P 500 dropped 0.97% and the NASDAQ tumbled 1.43%. The MSCI Emerging Markets Index surprised on the upside by jumping 2.13%.
With the Q4 emerging markets rally a no-show in 2016, I am recommending that you take advantage of this short-term rally and sell your position in the iShares MSCI Emerging Markets ETF (EEM) for a 5% gain.
This week’s new Bull Market Alert recommendation revisits a previous oil and fracking play.
Recall that fracking is the process of extracting oil from the ground by unconventional means.
U.S. Silica Holdings Inc. (SLCA) produces and sells commercial silica — “fracking sand,” in plain English — used by oil frackers to recover oil and natural gas.
U.S. Silica Holdings, Inc. (SLCA) vs. the S&P 500 over 12 months
As the chart above confirms, SLCA had a remarkable run in 2016.
Here is why I expect that run to continue into 2017.
First, as a result of the improved efficiency of fracking techniques, the amount of sand used per well has increased by two to three times over the past year. That means that demand for the fracking sand U.S. Silica Holdings provides has exploded, with requirements in 2017 expected to surpass the previous peak in 2014.
Second, President-elect Donald Trump’s pledge to loosen restrictions on oil and gas drilling has lit a fire under the entire sector. This change in prospects is especially significant for fracking sand producers whose business is in the United States and whose share price has been hit hard over the past two-and-a-half years.
Third, U.S. Silica Holding’s stock has terrific momentum and is the top bet on the fracking sector among the more than 40 leading small-cap investment strategies that I track.
So buy U.S. Silica Holdings, Inc. (SLCA) at market today and place your stop at $47.20.
If you want to play the options, I recommend the SLCA March $55 calls (SLCA170317C00055000), which last traded at $5.54 and expire on March 17.