The last time I wrote about National Oilwell Varco, Inc. (NOV) I stated, "…I remain neutral on the stock and will just hold my shares." Since the last article it dropped 1.27% versus the 0.51% drop the S&P 500 (SPY) posted. Varco provides equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry worldwide.
On January 31, 2014, the company reported fourth quarter earnings of $1.56 per share, which beat the consensus of analysts' estimates by $0.17. In the past year the company's stock is up 3.93% excluding dividends (up 5.13% including dividends), and is losing to the S&P 500, which has gained 15.83% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the basic materials sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 13.41, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 11.98 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $6.18 per share and I'd consider the stock inexpensive until about $93. The 1-year PEG ratio (0.29), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 15.53%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 15.53%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.4% with a payout ratio of 19% of trailing 12-month earnings while sporting return on assets, equity and investment values of 7.0%, 11.0% and 8.7%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.4% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 5 years Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock bouncing off of oversold territory with a value of 40.44. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is just about to cross above the red line with the divergence bars increasing in height, indicating some bullish momentum. As for the stock price itself ($74.06), I'm looking at the 200-day simple moving average (currently at $74.90) to act as resistance and $71.68 to act as support for a risk/reward ratio which plays out to be -3.21% to 1.13%.
- The company beat analyst estimates on fourth quarter earnings. On 31Jan14 the company reported fourth quarter earnings of $1.56 (beating analyst estimates by $0.17) on revenue of $6.17 billion (also beating analyst estimates by $310 million).
- The company was downgraded by RBC. Taking the stock from "Outperform" to "Sector Perform" with an $86 price target, RBC cites offshore drilling headwinds which will limit inbound rig orders.
The company is a leader in drilling equipment and a high quality name. The oil sector has been left behind the market, and specifically this stock has been left behind. Fundamentally the company is inexpensively priced based on future earnings and on future growth potential. Financially the dividend is secure but is a low yield and management efficiencies have deteriorated a bit. On a technical basis I believe there may just be some light at the end of the tunnel here with some bullish momentum. Due to the slightly bullish technicals, inexpensive valuation, and high earnings growth potential I'm going to be pulling the trigger on a very small batch of this particular name right now.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!