4 Reasons to Buy This 5-Star Stock
Josh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Not many companies, if any, can claim that their products are necessary to keep an entire industry running. However, that is exactly what National Oilwell Varco's (NYSE: NOV) CEO Merrill Miller, Jr. states, as he explains that his company's products "can be found in every oil rig that exists." Simply stated, these are rare, yet excellent words for investors to hear -- particularly if they are a fan of huge moats.
Despite this incredible moat, the company has seen its stock price slide 15% over the last year on merger concerns and a slowing oil and gas drilling industry. Due to these concerns, the company has a low P/E of 12, well below its 10 year average of 17, and a P/B of 1.5, also lower than its 10 year average of 2. In addition to these appealing historical valuations, I have found 4 reasons that I believe National Oilwell Varco makes a great long-term investment, and it starts with the Foolish people trading on CAPS.
1) The Most Loved Pick on CAPS
Through a bit of unofficial research, it appears as if National Oilwell Varco is the single most-loved stock on CAPS, relatively speaking of course. With 3,827 bulls and 51 bears, the company boasts a bull/bear ratio of almost 75:1. Consider that for a moment -- for every 75 people willing place an outperform call on the company for their CAPS account, only 1 is willing to risk their CAPS points and go against them. For a comparison, here are some of the company's main competitors and their respective stats:
|National Oilwell Varco||3827||51||75|
|Halliburton (NYSE: HAL)||3294||168||20|
|Weatherford Int'l (NYSE: WFT)||1007||31||32|
|Schlumberger (NYSE: SLB)||3029||80||38|
|Johnson & Johnson||13543||496||27|
While Johnson & Johnson doesn't really fit this list, they were included as the 5-star stock with the most bulls of any company, simply for reference. As it can be seen, National Oilwell Varco's appeal in the Motley Fool community on CAPS is something that cannot be denied. Coming in with a Bull/Bear Ratio almost double that of some major competitors in the oil and gas industry, the company is a clear favorite. Not only are they loved by the CAPS community -- and a recommendation in the Stock Advisor newsletter -- they also have a major investor who has been increasing their number of shares lately.
2) Warren Buffett and Berkshire Hathaway
Yes indeed, the man and the company famous for targeting businesses with huge moats, has re-upped their stake in what may be one of the safest plays in its industry. Using its initials N.O.V., National Oilwell Varco is often referred to as "No Other Vendor," something that couldn't fit Buffett's investing strategy better. Considering the cult-like following Buffett demands, it is safe to say that much of the love the company sees on CAPS is owed to the world's richest man. With All-Stars on CAPS having chosen outperform on a 923-8 basis, or a 115 Bull/Bear Ratio, it can be seen that many of the best on CAPS are big Buffett backers.
While following the crowd is generally a poor investment choice historically speaking, I firmly believe you are doing just fine following the "crowd" of Warren Buffett and the Motley Fool. Regardless of Warren's initial acquisition price for the company, it is good to see Berkshire adding to their stake at the stock's recent prices. However, what is it about N.O.V. that has allowed it to garner so much attention from these big names?
3) Their $12 Billion Backlog
Well, let's start with National Oilwell Varco's enormous $12 billion backlog in its largest and most profitable segment, Rig Technology. Consisting of orders over $250,000 and wireline units above $75,000, the company's backlog is an inside look at its upcoming demand for the next few years. With $1.9 billion of its backlog expected to flow out in the 4th quarter of 2012 and $7 billion planned to move in 2013, the company is proving yet again how vital its equipment is in the drilling industry.
Considering that the Rig Technology segment accounted for $7.2 billion in revenue over the first 3 quarters of 2012, a backlog base of $7 billion in 2013 could easily send them to new revenue highs. Having grown revenue 25% annually over the last decade, this revenue growth is nothing new to the company. In fact, the company's revenue and EPS growth are some of the best in its peer group:
|Company||10 Yr Rev Growth||5 Yr Rev Growth||10 Year EPS Growth||5 Year EPS Growth|
|National Oilwell Varco||25%||7%||29%||3%|
Representing direct competition to the company's Rig Technology segment, Weatherford International has grown its revenue at a strong clip, but has largely been unable to deliver a profit for shareholders. With a growing debt level of $9 billion versus cash of only $365 million, and a lowered guidance for 2012, Weatherford has been unable to rebound off of its '08-'09 lows. Posting their huge backlog, maintaining consistent profitability, and widening its moat, National Oilwell Varco has shown its dominance over the smaller Weatherford in the Rig Technology industry.
As for Schlumberger and Halliburton, the company faces off against two large and steady competitors in its Petroleum Services and Supplies segment. Posting a win over analysts in its 4th quarter and a recent dividend increase of 39%, things look up Halliburton, but it still has work to do to return to its days of high growth. With revenues bouncing all over the last decade and EPS struggling to move to a consistently higher level, many analysts have grown pessimistic towards the stock, which bottomed out at $26 a share earlier in the year.
Meanwhile, with Schlumberger, things are looking great as they have continued their strong growth, with revenue and EPS rates over 10% annually. Drawing attention from a variety of fund managers, Schlumberger and Halliburton are beginning to be seen as too cheap to ignore, regardless of the industry's struggles. Trading with a P/E of 19, Schlumberger is the most expensive company of the group, but is also the biggest, and offers the highest growth rates over the last 5 years. However, don't count National Oilwell Varco out of the growth picture.
4) Robbins and Myers
Acquiring Robbins & Myers for $2.5 billion in cash, National Oilwell Varco is looking to further advance its presence in the oil and gas industries. Having been scrutinized by the Department of Justice, the merger was finally approved for February 20th, allowing N.O.V. to build out an even larger supply chain. Considering that its products are already on every rig in the industry, according to its CEO, the acquisition could lead to an even greater dependence upon the company's products and services. With any success, this could be a huge boon for long-term investors with margins potentially improving through their fully-integrated supply chain.
Foolish Final Thoughts
In summation, National Oilwell Varco boasts a number of reasons that make it a great investment for the long-term:
- Wide Moat
- Huge Backlog
- True Love, from CAPS, The Motley Fool, and Warren himself
- A Growth Plan
- Consistent Profitability and Revenue Growth
- A Fair, if not Cheap Valuation
Simply put, I'm not one who usually follows the crowd, but when The Motley Fool, Warren Buffett, and CAPS users everywhere see the potential in National Oilwell Varco, I can't help but consider an investment in the company referred to as "No Other Vendor."
joryko has no position in any stocks mentioned. The Motley Fool recommends Halliburton and National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!