Taking an Indirect Fracking Play and Preparing for a Clinton Presidency

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

It was a broadly flat week for stock markets across the globe. The Dow Jones rose 0.04%, the S&P 500 gained 0.38% and the NASDAQ eked out a 0.83% gain. The MSCI Emerging Markets Index rose a more solid 1.95%.

Big gainers in your Bull Market Alert portfolio included Take-Two Interactive Software (TTWO), which popped 5.39%; Allete, Inc. (ALE), which jumped 3.44%; and the iShares MSCI Emerging Markets (EEM), which moved 1.95% higher. EEM also moved back to a BUY.

Both ProAssurance Corporation (PRA) and Littelfuse (LFUS) fell below their 50-day moving averages to a HOLD.

With this many positions in your Bull Market Alert portfolio, it is an excellent time to cull some bets and lighten up on your overall market exposure.

The growing prospect of a Hillary Clinton presidency is hitting all medical-related stocks hard, despite their strong fundamentals. So this week I am recommending that you sell Cantel Medical Corp. (CMN) and Healthcare Services Group, Inc. (HCSG) at a loss before they hit their current stops.

This week’s new Bull Market Alert recommendation takes you back — indirectly — into the previously red-hot world of oil fracking, which extracts oil from the earth by unconventional means.

U.S. Silica Holdings Inc. (SLCA) produces and sells commercial silica — “fracking sand” in plain English — used by oil frackers in recovering oil and natural gas.


U.S. Silica Holdings vs. the S&P 500 year to date

As the chart above confirms, U.S. Silica Holdings has had a remarkable run in 2016.

Here is why I expect that run to continue.

First, the decline in oil prices has masked significant technological developments among frackers. 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 six months or so. And supplying that fracking sand is U.S. Silica Holdings’ bread and butter.

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Second, frackers have quietly started to pick up drilling activity. The number of active rigs has increased 25% to about 522 total rigs since hitting record lows in May. More drilling means more demand for fracking sand.

Finally, while many frackers are dealing with massive debt loads, U.S. Silica has kept its balance sheet robust. In fact, the company has signaled that it is planning to aggressively consolidate the fracking industry in what is a very fragmented market.

All of this, combined with OPEC’s recent efforts to bring the oil market back into balance, bodes well for frackers and, by extension, U.S. Silica Holdings, Inc.

The company will release its Q3 2016 financial results after the New York Stock Exchange closes on Thursday, November 3, 2016. That makes it a good time to bet on this stock, as it may pop on any better-than-expected good news.

So buy U.S. Silica Holdings Inc. (SLCA) at market today and place your stop at $41.50.

If you want to play the options, I recommend the January 2017 $50 calls (SLCA170120C00050000), which last traded for $3.91 and expire on Jan. 20.

Portfolio Update

iShares MSCI Emerging Markets (EEM) moved 1.95% higher last week. With the Dow Jones up just 0.04%, and the S&P 500 up only 0.38%, EEM gives you exposure to a global stocks far removed from U.S. markets. EEM moved above its 50-day moving average (MA) and is now a BUY.

Allete, Inc. (ALE) jumped 3.44% higher last week after consolidating for two weeks at its 200-day MA. ALE has not traded near its 200-day MA since January 2016, making this appear to be an excellent buying opportunity — especially given its bullish moves last week. With more clarity coming in ALE’s Nov. 4 earnings report, positive numbers could see ALE make an extended move higher. ALE is just under its 50-day MA and thereby is a HOLD.

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Cirrus Logic, Inc. (CRUS) rose 1.24%. CRUS reports earnings this Thursday, Oct. 27, as does one of its largest clients, Apple, Inc. A search for earnings report clues reveals that one of CRUS’s large chip suppliers, Taiwan Semiconductor (TSM), recently reported excellent earnings numbers. Perhaps Apple’s newly-released iPhone 7 is driving a positive cycle with its chipmakers, making TSM’s numbers a “canary in the coal mine” for CRUS’s report. CRUS is a BUY.

Masimo Corporation (MASI) added 0.89% last week. MASI announced results of a study recently to confirm the life-saving benefits of its technology. After studying over 18,000 patients, 3,450 of whom had MASI’s SpHb and PVI monitoring in use, the numbers revealed that the monitored group had a 30% reduction in mortality at 30 days and a 25% reduction in mortality at 90 days. MASI is a HOLD.

Take-Two Interactive Software (TTWO) popped 5.39%. TTWO recently announced the upcoming new release of its widely anticipated video game sequel “Red Dead Redemption 2,” causing quite a stir on social media channels. A Macquarie Securities analyst commented, “It’s a positive indicator that there’s this much excitement about a game coming out…” TTWO will report earnings on Nov. 2 after markets close. TTWO is a BUY.

Littelfuse (LFUS) fell 2.83%. Littelfuse announced Friday that its board of directors declared a dividend of $0.33 per share for Q4 2016. The company will pay the dividend on Dec. 8 to shareholders of record as of Nov. 23. Littelfuse will also report earnings on Nov. 3 before markets open. LFUS moved to a HOLD last week.

LogMeIn (LOGM) climbed 1.08% for its opening week in the Bull Market Alert portfolio. As technology continues to move to “the cloud,” LogMeIn is providing these services to end-users at a lower cost, higher security and greater simplicity. LogMeIn will report earnings after markets close on Thursday and is a BUY.

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Nicholas Vardy

Nicholas A. Vardy

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