The price of oil has been dropping in the past couple of weeks on signs of global economic weakness and a rough few days in the stock market. This has led to a solid pullback in a number of oil sector stocks. Investors should consider this buying opportunity that has just been created.
The demand for oil should rise over time due to population growth and increased consumption from emerging market countries. This is one major reason why investors should consider a "buy the dips" strategy and invest in the oil sector for the long term. One firm that supplies many oil companies from large to small is National Oilwell Varco, Inc. (NOV).
National Oilwell Varco designs, manufactures, and sells equipment and components used in the drilling and production of oil and natural gas. The company has products that are used in land and offshore drilling rigs, so it is poised to benefit from the growing demand in both shale and offshore projects in emerging markets. Here is a closer look at this company and a few reasons why the stock looks like a buy on dips:
1) National Oilwell Varco recently reported financial results. While many companies in the oil and other sectors have been reporting weaker results, this company announced third quarter earnings of $612 million, or $1.43 per fully diluted share. This compares favorably to third quarter 2011 earnings of $1.25 per fully diluted share. This means earnings grew by about 14% in the most recent quarter. Furthermore, it announced that the backlog for capital equipment orders is now up to $11.66 billion.
2) National Oilwell Varco has a strong balance sheet with about $1.92 billion in cash and around $1.45 billion in debt. The company's balance sheet strength reduces risks for investors and gives it financial flexibility.
3) A number of well-known investors and analysts have taken a liking to National Oilwell Varco. Billionaire value investor Warren Buffett has been investing in this stock and his Berkshire Hathaway reported that it bought about 2.84 million shares earlier this year. Barron's also recently endorsed the stock and suggested a $100 price target for the shares. Mad Money's Jim Cramer is also bullish on the stock, especially as a growth play on China.
This stock was trading around $85 in September, but the recent pullback allows investors to get in for quite a bit less. This stock has a 200-day moving average of about $75.36. It is right around that key support level now, and therefore might not go much lower.
Here are some key points for NOV:
- Current share price: $74.88
- The 52 week range is $59.07 to $89.95
- Earnings estimates for 2012: $5.96 per share
- Earnings estimates for 2013: $6.93 per share
- Annual dividend: 48 cents per share, which yields .6%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.