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For investors betting on a quicker than expected recovery, Baker Hughes (NYSE:BHI) and National Oilwell Varco (NYSE:NOV) are particularly attractive value plays. Having a beta of 1.7, both are highly correlated with the macro-economy due to the direct industrial application. I find that both companies have significant upside and little downside given the earnings potential and the likelihood of multiples expansion.

From a multiples perspective, Baker Hughes is the cheaper of the two. It trades at a respective 12.8x and 9.3x past and forward earnings while NOV trades at a respective 16.2x and 12.1x past and forward earnings. On the other hand, the latter has a significantly cleaner balance sheet, which more than makes up for its lower dividend yield. NOV has a net cash position of $3.4B, which represents 11.2% of market value. Baker Hughes has net debt of $3.1B, which represents 14.8% of market value. Due to the onshore expansion for NOV, analysts rate the company higher at a "strong buy."

On the third quarter earnings call, NOV's Chairman and CEO Merrill Miller noted impressive performance:

"Earlier today, we announced the earnings of $532 million or $1.25 per fully diluted share on revenues of $3.74 billion. This compares to earnings of $481 million or $1.13 per fully diluted share in the second quarter of 2011, and third quarter 2010 earnings of $406 million or $0.97 per fully diluted share. We are very pleased with these results, and they reflect the confidence our customers have in our products and services.

Additionally, we also announced today new capital equipment orders in the quarter of $3.94 billion, a new record for the company. These new orders increased the total capital equipment backlog to $10.27 billion, a 33% increase from the second quarter of 2011."

At the same time, the company is progressing in streamlining the business through decreasing its cost base, restructuring its offshore fleet, and adding rig production. The Macondo report recommended more reliable drilling activity in from BOP systems and the Shear Max Cow Force Casing Shear Rams addresses some of the regulatory issues. Overall, management is de-risking the business through increasing onshore rights and improving shipyard time. The subsequent greater certainty with earnings will inspire investor entry. NOV is further doing well with exercising options and Petrobras trade.

Consensus estimates for NOV's EPS are that it will grow by 14.7% to $4.69 and then by 25.6% and 14.9% more in the following two years. Assuming a multiple of 17x and a conservative 2012 EPS of $5.80, the rough intrinsic value of the stock is $98.60, implying 39% upside.

Baker Hughes similarly had a strong third quarter performance with record sales figures. The company is increasing staff by 20% in the Marcellus and ramping up production in the Utica, which illustrates confidence in end market demand. While difficulties in integrating BJ Services and sand taking shortages will mitigate margins in the fourth quarter, the company's expansions will spread out fixed costs. The company recently reached a $640M contract with the Iraqi government for three years worth of building 60 wells in Zubair. This comes off of an earlier 23-well deal with Lukoil.

Consensus estimates for Baker Hughes' EPS are that it will grow by 94.6% to $4.32 and then by 28.2% and 18.8% more in the following two years. Of the 14 revisions to estimates, 13 have gone down for a net change of -0.7%. Assuming a multiple of 16x and a conservative 2012 EPS estimate of $5.47, the rough intrinsic value of the stock is $87.52. If the multiple were to hold steady at 12.8x and 2012 EPS is flat to the consensus of the preceding year, the stock would still rise by 32.2%. Baker Hughes thus deserves its near "strong buy" rating on the Street.

It is important to note that analysts are bullish on the sector, in general. The much smaller Newpark Resources (NYSE:NR), for example, trades at a respective 14x and 10.5x past and forward earnings and is rated a "strong buy" as well.

Source: National Oilwell Varco Could Break $100, Baker Hughes Gains