Each week I cull a top stock idea from the pitches made on CAPS, the Motley Fool's 180,000-member, free investing community. Want your idea considered for this series? Make a compelling pitch on CAPS with a minimum length of 400 words.
|
Company |
CARBO Ceramics (CRR) |
|---|---|
|
Star Rating |
***** |
|
Industry |
Oil & Gas Equipment and Services |
|
Market Cap |
$2.22 billion |
|
Outperform Pick Submitted By: |
|
|
Member Rating: |
37.88 |
|
Submitted On: |
3/18/2013 |
|
Stock Price At Outperform Recommendation: |
$95.98 |
Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS
Carbo Ceramics makes some of the best proppant in the entire industry. Unlike US Silica's sand-based proppant and Chinese low-quality sand/ceramic proppant, Carbo Ceramics makes ceramic proppant that is high in quality. In doing so, Carbo Ceramics improves the yields of the companies that it does business with (Halliburton and Schlumberger). This fact has started to greatly improve Carbo Ceramics' position with these and other drillers as drillers are starting to realize that Carbo Ceramics can provide them with a greater ROI.
In addition, Carbo Ceramics is in the process of opening a new plant in the Bakken in order to be closer to its customers so that it does not have to deal with shipping its inventory to the Bakken. This should help greatly in reducing logistical costs (which I can imagine are high considering that proppant is dealt with in millions of tons).
It is very important to also consider that, while rig counts are currently depressed, they will not likely stay that way in the long run. Many experts are starting to figure that there will be a large economic boom resulting from the Bakken oil drilling as well as other American drilling. Resulting from this will be increased focus on oil plays and other liquid plays. As anyone will agree, a rising ocean lifts all boats... and Carbo Ceramics is one of those lucky boats.
Making an investment in Carbo Ceramics protects the investor from the commodity prices of oil to some degree since all drillers will need proppant of some kind in order to continue fracking operations. Though rig count may increase or decrease, Carbo's products will still be needed regardless.
This is why I'm putting Carbo Ceramics as outperform for the long-term.
Another idea
CARBO Ceramics is highly dependent on drilling activity in the U.S., which is currently booming as companies switch from natural gas to drilling for oil. While drilling activity can fluctuate wildly, oil and natural gas needs to be moved from the fields to where it is in demand.
