National-Oilwell Varco, Inc. (NOV) and Enterprise Products Partners L.P. (EPD) are two oil & gas related stocks in the sector of basic materials, both with high net margins, solid revenue growth, and offering steady dividends. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be reviewed.
National-Oilwell Varco, Inc.
NOV was up 1.40% and closed at $69.74 on March 26, 2013. NOV had been trading in the range of $59.07-$89.95 in the past 52 weeks. NOV has a market cap of $29.64B with a beta of 1.71. NOV remains a great buy with its strong fundamentals and solid growth at current valuation.
On March 26, 2013, Guggenheim upgraded NOV from neutral to buy with a price target of $83.00 (from $71.00). Analysts currently have a mean target price of $85 for NOV, suggesting 21.88% upside potential. Analysts, on average, are estimating an EPS of $1.37 with revenue of $5.39B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $5.96 with revenue of $22.72B, which is 13.40% higher than 2012.
NOV's EPS is expected to reach $8.29 by 2015, as seen from the chart below. NOV's long-term annual EPS growth is estimated at 14.33% for the next 5 years.
There are a few positive factors for NOV:
- Higher revenue growth (3 year average) of 16.4 (vs. the industry average of 6.5)
- Higher operating margin of 17.8% and net margin of 12.4% (vs. the industry averages of 14.7% and 8.7%)
- Stronger ROE of 13.2 (vs. the average of 12.0)
- Lower debt/equity of 0.2 (vs. the average of 0.4)
- Lower P/E and P/B of 11.8 and 1.4 (vs. the industry average of 19.3 and 2.1)
- Lower Forward P/E of 9.6 (vs. the S&P 500's average of 13.9)
- NOV currently offers an annual dividend yield of 0.75%
Technically, the MACD (12, 26, 9) is showing a bullish trend. The momentum indicator, RSI (14), is picking up and indicating a slightly bullish lean at 54.69. NOV had broken through and closed above its 50-day MA of $69.36 in the last trading day. NOV is currently trading below its 200-day MA of $71.73, as seen from the chart below.
How to Invest
With solid EPS and revenue growth, high margins, and a healthy balance sheet, NOV remains a solid long-term holding. Our last reviewed credit options spread of May 18, 2013 $60/62.5 put is currently yielding a profit. For new investors, a new credit put spread of May 18, 2013, $62.5/$65 put can be reviewed, which will allow investors to gain some upside credit premium or to acquire NOV shares at a price below $65 upon options expiration. Investors can also review the following ETFs to gain exposure to NOV:
- Market Vectors Oil Services ETF (OIH), 9.72% weighting
- Dow Jones U.S. Oil Equipment & Services Index Fund (IEZ), 7.62% weighting
- Energy Select Sector SPDR (XLE), 2.56% weighting
Enterprise Products Partners L.P.
EPD was up 0.57% and closed at $59.66 on March 26, 2013. EPD had been trading in the range of $45.67-$59.89 in the past 52 weeks. EPD has a market cap of $54.13B with a very low beta of 0.65. EPD remains a great holding for its steady cash flow.
Analysts currently have a mean target price of $61.15 and a median target price of $61.00 for EPD, suggesting 2.25%-2.50% upside potential. Analysts are estimating earnings of $0.64 per share with revenue of $11.48B for the current quarter ending in March, 2013. For 2013, analysts are projecting earnings of $2.72 per share with revenue of $47.31B, which is 11.30% higher than 2012.
EPD's free cash flow per share has been fluctuating steadily within a small range since mid-2010. Despite the declining dividend yield, EPD remains attractive at the current dividend yield of 4.48% (the last quarter dividend distributed was $0.66 on January 29, 2013)
There are a few positive factors for EPD:
- Higher revenue growth (3 year average) of 18.6 (vs. the industry average of 7.1)
- Higher net margin of 11.4% (vs. the industry average of 5.2)
- Stronger ROE of 38.3 (vs. the average of 11.9)
- Lower debt/equity of 1.1 (vs. the average of 1.4)
- Lower P/S of 1.2 (vs. the average of 1.5)
Technically, the MACE (12, 26, 9) is showing a bullish trend, and the MACD difference continues to diverge. RSI (14) is indicating a strong buying momentum at 72.35, where above 70 is considered as over-bought. EPD is currently trading above its 50-day MA of $56.37 and 200-day MA of $52.78, as seen from the chart below.
How to Invest
With its steady cash flow, EPD remains a great long-term holding. In the near-term, EPD is very bullish, technically. For cash flow investors, patience is required to buy EPD after a pullback for a better dividend yield. For bullish investors who leverage options, a credit put option spread of June 22, 2013 $50/$55 put can be reviewed. Investors can also review the following ETFs to gain exposure to EPD:
Note: All prices are quoted from the closing of March 26, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Additional disclosure: May initiate a long position in EPD