This article is part of our real-money portfolios series.

Technical ceramics-maker Ceradyne (Nasdaq: CRDN), a holding of my Messed-Up Expectations portfolio, was hit pretty hard in April when it missed pretty badly on expected revenue and earnings for the first quarter. Interestingly, though, the share price hasn't changed much since then, certainly not falling further in May as the rest of the market fell.

The main culprit was a large drop in sales of crucibles to the solar silicon photovoltaic market as customers had overproduced silicon wafers and need to work through that inventory before melting more silicon in Ceradyne's one-time use crucibles.

Ceradyne is in the midst of a transition, moving away from relying primarily on defense-related sales (it sold a lot of body armor and helmets) to selling to wide range of industries, including automotive, nuclear, oil and natural gas, health care, electronics, pharmaceutical and chemical, and cosmetics.

Yes, I wrote cosmetics. It recently struck a deal with Merck KGaA to expand sales of boron nitride -- a white powder with good spreadability and a velvety feel -- to the cosmetics industry for items like eye shadow and liquid foundation. That's a long way from battle armor, though I guess one could say that cosmetics are part of a woman's arsenal.

It's growing sales in the energy sector, too, both to the nuclear industry (e.g., nuclear waste containment) and the oil and gas industry. It has PetroCeram, a ceramic screen that filters out sand during oil and gas extraction. As Petrobras (NYSE: PBR) starts working the large oil fields off the shore of Brazil, Ceradyne expects to sell a lot of these.

Finally, a potentially very large growth area is in micro reactors, used in chemical and drug manufacturing. These are small-volume, high-throughput ways of synthesizing chemicals that result in better control of the reactions, giving higher yield and fewer side products, along with using less energy. The ESK Ceramics subsidiary is already involved in larger-scale flow-chemistry reactors, and it recently invested in Chemtrix, a German company, which will help it with the micro reactor market. Giants Johnson & Johnson (NYSE: JNJ) and DuPont (NYSE: DD) already use the technology, and the field is rapidly growing.

Of course, the transition away from defense is not going to go 100% smoothly, as the drop in sales of those crucibles demonstrated. However, Ceradyne is making the right moves, partnering with experienced companies to expand in new markets, and obtaining technology with strategic investments and acquisitions.

The company's goal is to reach sales of $1 billion by 2016, a bit less than double what it's achieved over the past four quarters. If it continues to find new areas to sell ceramics into, it should be able to reach that level.

The company hit a rough patch resulting in a lower share price. My thesis hasn't been broken, however, so I'm going to increase my investment in Ceradyne.

As noted, oil and natural gas are only a small part of what Ceradyne is doing. If you want three ideas of where to invest just in that exciting industry, check out our free report, " 3 Stocks for $100 Oil ," where we detail three companies we think will do well in today's markets.

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