U.S. Silica Holdings Inc (NYSE:SLCA) reported its financial results for the second quarter on Tuesday after the closing bell. The stock jumped as much as 18% in the early trading hours on Wednesday before closing the day with a 15.8% gain. This jump was mainly due to the earnings beat the company reported, as its earnings of $0.08 per diluted share, excluding tax benefits beat the Street’s expectations of $0.07 in EPS for the quarter. The company missed the Street’s estimates on revenues by $8.57 million however, as it reported total revenue of $147.5 million for the quarter.
Year-over-year revenue for the quarter fell by a whopping 28.3%. The commercial silica provider reported that it sold 2.3 million tons of silica in the second quarter, 13% lower than the same quarter in 2014, and down 15% quarter-over-quarter. The oil and gas segment revenues dropped by more than 39% year-over-year to $90.9 million, whereas the industrial and specialty business revenues increased year-over-year by 0.3% to $56.7 million. “Looking ahead at our Oil and Gas business, we believe sales volumes are stabilizing but pricing is likely to remain fluid in the near-term. For Industrials, we expect continued strong performance, driven by a combination of contributions from new, higher margin products, new business opportunities and healthy end markets for our major product lines,” CEO of U.S. Silica Holdings Inc (NYSE:SLCA), Bryan Shinn was quoted as saying in a company statement. Are the gains justified after losing almost half of its value since April?
We can say that the smart money appears to have foreseen the poor stock performance of U.S Silica coming and took their profits while there was some taking to be had. At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish in U.S. Silica Holdings Inc (NYSE:SLCA), with a total investment value of $385.1 million in it, 30% more than the aggregate capital invested by 34 hedge funds at the end of 2014. During the January – March period, the stock appreciated by nearly 38% of its value, so we see that hedge funds pulled some money out of this stock during the first three months of the year, while several funds closed positions.
But why do we track the hedge fund activities? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 80 percentage points over the 34 month period beginning with September 2012 (read the details here).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that can lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at the insider activity on U.S. Silica Holdings Inc (NYSE:SLCA), there were a couple of insider purchases and sales filed by the company’s insiders over the past six months. Notably, one of the Directors at U.S. Silica Holdings Inc (NYSE:SLCA), Daniel Avramovich purchased 10,000 shares on June 30 and Chief Financial Officer Donald Merril purchased 915 shares in March. On the contrary, Vice President of Supply Chain Jason Tedrow and Vice President of Talent Management David Murry sold around 4,000 shares and 1,000 shares respectively in May.
Keeping this in mind, let’s take a gander at the latest hedgie actions surrounding U.S. Silica Holdings Inc (NYSE:SLCA).
How are hedge funds trading U.S. Silica Holdings Inc (NYSE:SLCA)?
Of the funds tracked by Insider Monkey, Millennium Management, led by Israel Englander, holds the most valuable position in U.S. Silica Holdings Inc (NYSE:SLCA) with around 2.7 million shares valued at $95.1 million, comprising 0.2% of its 13F portfolio by the end of March. The second-largest stake is held by Ariel Investments, led by John W. Rogers, holding around 2.5 million shares worth $88.6 million; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Anand Parekh’s Alyeska Investment Group, Philippe Laffont‘s Coatue Management, and Todd J. Kantor’s Encompass Capital Advisors.
Since U.S. Silica Holdings Inc (NYSE:SLCA) has experienced bearish sentiment from hedge funds, it’s safe to say that there is a sect of funds that slashed their positions entirely heading into the second quarter. Intriguingly, Jim Simons‘ Renaissance Technologies dropped the biggest stake in the stock by offloading all its 862,600 shares in the first trimester, with Glenn Russell Dubin of Highbridge Capital Management right behind this move, as the fund manager cut about 660,000 shares. These transactions are intriguing to say the least, as total hedge fund interest dropped by five funds heading into the second quarter.
Top hedge fund managers like Jim Simons opting to walk out of this stock clearly indicates the bearish hedge fund sentiment towards U.S. Silica Holdings Inc (NYSE:SLCA). Despite a second quarter earnings beat and the company’s positive comments about its core business, there are a lot of uncertainties surrounding the oil and gas business. As such, we don’t recommend buying this stock at the moment.
Disclosure: None
