Carbo Cooks With Gas: Under the Radar

BOSTON (TheStreet) -- T. Boone Pickens' ambitions to wean the U.S. from foreign oil while fighting global warming may not be as altruistic as he claims but that doesn't mean his plan is without merit.

The billionaire oilman has proposed that America should invest $1 trillion in wind farms for the Midwest to provide clean energy in that region as well as the South and West, allowing the natural gas used for power generation in those areas to be diverted to heavy-vehicle transportation.

The plan would seem to be a boon for natural-gas stocks, such as Chesapeake Energy(CHK Quote), Southwestern Energy(SWN Quote) and ConocoPhillips(COP Quote). The lesser-known Carbo Ceramics(CRR Quote) stands to be one of the main beneficiaries of a push toward natural gas.

Critics of the Pickens plan say there isn't enough natural gas to meet demand. To do so, companies would need to exploit more of the commodity that's locked in shale deposits. But that extraction process -- known as hydraulic fracturing -- is more complicated than conventional drilling.

In hydraulic fracturing, a fluid is injected into the shale to break it apart. The fluid has a proppant -- a sort of conduit -- suspended in it to prevent the opening from collapsing in on itself. Here's where Carbo Ceramics comes in. Carbo produces the ceramic proppant beads used to maintain the openings. Not very glamorous, but it's a vitally important part of the process.

Beyond proppant production, Carbo also produces widely used hydraulic-fracturing-simulation software and provides consulting services. That niche has proved profitable. Carbo's stock has risen 53% over the past year and has a return on equity of nearly 15%. That may not sound very high, but considering that the business is nearly 100% funded with equity, it's quite impressive.