Why US Silica Holdings Inc. Barely Missed a 10% Drop Today

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of US Silica Holdings dropped by as much as 12.5% today before recovering enough to end the day at 9.5% below the opening bell on a sweeping sell-off of energy stocks that very few companies in the space were spared from.

So What: It's hard to say that the price drop of West Texas intermediate crude to less than $65 per barrel has no tangible effect on the operations of US Silica, because even though the company's revenue is directly tied to the price of oil, it is also tied to shale drilling activity in North America.

One of the reasons US Silica was spared a less than 10% drop, unlike other frac sand suppliers, is that much of the company's sales of sand is based on long-term supply contracts with fixed prices rather than spot market sales. The bigger fear, though, is that a prolonged lull in oil prices will reduce overall shale drilling activity will lead to waning demand for frac sand.

Now What: There are lots of people making oil price predictions right now, but the reality is no one really knows what is going to happen. Taking the long view, though, investors who think oil will remain an in-demand product for many years could view this as a second chance to buy into frac sand suppliers at a pretty decent discount.

The article Why US Silica Holdings Inc. Barely Missed a 10% Drop Today originally appeared on Fool.com.

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Tyler Crowe has no position in any stocks mentioned.You can follow him at Fool.com under the handle TMFDirtyBird, onGoogle+,or on Twitter@TylerCroweFool.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.