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Baker Hughes Incorporated (BHI), CARBO Ceramics Inc. (CRR): Why I’m Buying Hi-Crush Partners LP (HCLP)

What’s the risk?
The biggest risk for Hi-Crush is customer concentration. One of its four main customers, Baker Hughes Incorporated (NYSE:BHI) decided to bail on its contract last year. That sent shares of Hi-Crush Partners LP (NYSE:HCLP) down sharply and the loss of another customer could signal greater problems at the company. A core thesis to owning Hi-Crush is the long-term contracts it has with customers which secures the high investor payout. Currently, the company has fixed price contracts with an average life of more than three years. If the security of these contracts begins to crumble, it could be time to walk away.

Final Foolish thoughts
One final note, I did not buy shares outright. Instead, I wrote puts in order to buy shares cheaper or to earn income. For me, this was about managing my risk giving the fact that the market seems to be hitting new highs almost daily. That being said, I think Hi-Crush Partners LP (NYSE:HCLP) will end up being a long-term winner for my portfolio and I’d just prefer to buy it a bit cheaper.

The article Why I’m Buying Hi-Crush Partners originally appeared on Fool.com and is written by Matt DiLallo.

Matt DiLallo has the following options: Short Jul 2013 $17.5 Puts on HI-CRUSH PARTNERS LP (NYSE:HCLP) UNIT LTD PARTNER INTS. The Motley Fool owns shares of HI-CRUSH PARTNERS LP UNIT LTD PARTNER INTS and US SILICA HLDGS INC COM USD0.01.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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