For those of you looking to invest in the oil and gas equipment and services stocks, there are plenty of choices out there for you. The entire industry seems to be an enticing place to park your cash, especially for those oil bulls out there. But of all the oil and gas equipment companies out there, one stands out as the true champion of the group: National Oilwell Varco, Inc. (NOV).
The company has proven to be the top dog in the industry, strategically expanding through acquisitions. Within the past year National Oilwell Varco has acquired Wilson International for $800 million, CE Franklin Limited for $239 million, and Robbins & Myers for $2.5 billion. So obviously management sees lucrative opportunities to increase its presence in the industry.
In addition to its aggressive growth strategy, the company has posted consistent earnings over the past year.
|Quarter||EPS||Prior Year EPS||Difference YoY||% Increase|
|1Q||2012: $1.44||2011: $1.00||$0.44||44%|
|2Q||2012: $1.46||2011: $1.14||$0.32||28.1%|
|3Q||2012: $1.43||2011: $1.25||$0.18||14.4%|
|4Q||2012: $1.44||2011: $1.37||$0.07||5.1%|
Though the earnings growth rate has decreased significantly over the past few quarters, keep in mind that net income for 2012 rose 25.1% from $1.99 billion in 2011 to $2.49 billion in 2012, or from $4.70 in EPS to $5.83 in EPS. In addition, revenue rose 36.7% from $14.66 billion in 2011 to $20.04 billion in 2012.
So who's the competition?
There's no lack of competition in the oilfield equipment and services business. From industry stalwart Schlumberger Limited (SLB), to household names like Halliburton Company (HAL) and Baker Hughes Incorporated (BHI), to less-known Weatherford International Limited (WFT), all the way down to hardly-ever-mentioned names like Superior Energy Services, Inc. (SPN) and Key Energy Services Inc. (KEG), competition is abundant.
They say that numbers don't lie, and in the case of finding the best value of all these stocks I'd have to agree. So now let's take a look at how National Oilwell Varco stacks up against its peers.
(For more stats on each company, click its symbol below.)
|$29.07 B||$103.32 B||$38.31 B||$20.23 B||$9.66 B||$4.13 B||$1.29 B|
|Total Cash||$3.32 B||$6.28 B||$2.75 B||$1.02 B||$365 M||$99.41 M||$45.95 M|
|Total Debt||$3.15 B||$11.63 B||$4.82 B||$4.92 B||$8.91 B||$1.96 B||$848.11 M|
|Dividend (%)||$0.52 (0.76%)||$1.25 (1.61%)||$0.36 (0.88%)||$0.60 (1.31%)||N/A||N/A||N/A|
At first glance of the numbers, you might think that there's nothing too spectacular about National Oilwell Varco. Sure the company has a low enterprise multiple, low price/earnings multiple, a modest PEG and price/book multiple, solid margins, and a clean balance sheet; but there's nothing that truly separates it from its peers. But you'd be wrong to believe that for one second. Ever heard of Warren Buffett? Well he really likes National Oilwell Varco, so much so that he upped Berkshire Hathaway's (BRK.A) stake in the company by 26.5% to 5.29 million shares, worth over $360 million.
If you're a value-oriented investor looking for a long-term holding, I'd argue that this could be the stock you've been searching for. With strong fundamentals, solid earnings, a low valuation, and Warren Buffett on your team, it's hard to imagine a better situation.
Disclosure: I am long NOV.