Hi-Crush Partners LP (HCLP), Baker Hughes Incorporated (BHI): Sand and Water, the “Picks and Shovels” of Hydraulic Fracturing

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U.S. Silica Holdings Inc (NYSE:SLCA) stock climbed from around $11 a share to over $21 a share over the past year. At about 15 times earnings, the stock is more attractively valued than Hi-Crush. US Silica also carries less debt than Hi-Crush. However, US Silica only pays a 2.3% yield, far less than its competitor. Further, while revenues have steadily grown, earnings don’t always follow, a worrisome sign.

Two developments investors should look at: First, US Silica recently announced the opening of a new fracking sand facility near the Eagle Ford oil basin. Teaming up with railroad company BNSF, US Silica will be able to ship 10,000 tons of sand every two days to drillers working this oil play. Clearly, a good thing. Second, US Silica announced the sale of almost 12 million shares of its common stock from a private equity firm. While US Silica will not receive any proceeds from this sale, it could put downward pressure on the stock.

Final Foolish Thoughts

Hydraulic fracturing requires as much as 6 million gallons of water and 2,500 tons of sand per well. This spells opportunity for companies supplying these products. Hi-Crush looks like the best all-around investment with its combination of high yield and growth potential. While selling at a higher earnings multiple than US Silica, Hi-Crush offers an inviting combination of immediate income and long term growth. Nuverra is the high risk/high growth stock of the bunch. Watch for improvements in operating income and debt going forward.

Robert Zimmerman owns shares of Nuverra Environmental Solutions and has the following options: Short Jun 2013 $4 Puts on Nuverra Environmental Solutions. The Motley Fool owns shares of Nuverra Environmental Solutions and has the following options: Long Jan 2014 $4 Calls on Nuverra Environmental Solutions and Short Jan 2014 $3 Puts on Nuverra Environmental Solutions.

The article Sand and Water, the “Picks and Shovels” of Hydraulic Fracturing originally appeared on Fool.com and is written by Robert Zimmerman.

Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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