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Emerge: “Sand is the New Gold”
10/22/2014 7:00 am EST
Volatility often leads to opportunity; as Baron Rothschild was famous for saying, “Buy when blood is running in the streets”, observes Mark Skousen, editor of High-Income Alert.
That’s what I see happening with Emerge Energy Services (EMES).
We were previously stopped out of this stock after locking in a double-digit capital gain and generous dividends. But the recent plunge now has made the stock a super bargain.
Sand is the new gold. During the gold rush era of the 19th century, the big winners were the service industries: the merchants who catered to the gold diggers. Today, the big winners are the energy service companies.
Based in Southlake, Texas, Emerge produces the silica sand that is a key input for the hydraulic fracturing (i.e. fracking) of oil and gas wells.
It also has a fuel processing and distribution division that manufactures and sells transportation mixtures.
Fracking has made it possible to access oil and gas deposits that were formerly declared uneconomic.
As a result of this new technology, the United States is undergoing an energy renaissance. And a huge new market is opening up for the export of liquefied natural gas (LNG).
CEO Rick Shearer says the firm will double its capacity in the next year to become the largest maker of proppant, the sand essential to the hydraulic fracturing process. EMES is sold out at its existing facilities and has announced the construction of a new plant in Arland, Wisconsin.
However, the recent drop in oil and gas prices has knocked down stocks in the energy sector.
I don’t know how low oil prices will go, but this much I do know: energy service stocks are now breathtakingly cheap. Emerge is one of them.
I estimate that EMES will earn $3.60 a share this year and $9 a share in 2015.
That’s right. Earnings will more than double. Yet the stock is selling for approximately nine times those prospective earnings.
Despite the volatile market conditions, this is a stock you can add to your portfolio with confidence. The 5.6% dividend yield is likely to rise too.
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