3 Of My Favorite Oil and Gas Stocks of 2012

Includes: NOV, PSX, SDRL
by: Quinn Bredl

The year 2012 is winding down rapidly, with only days left before the New Year begins. It's been a wild year full of joy and sorrow, pride and disgrace, and countless other clichés and antonyms. The most interesting part is that it's not quite over yet; we still have those babies in Washington fighting to solve our nation's fiscal issues. But I try not to let politics get in the way of good investing, though they surely have a strong impact on the markets. While many market participants fret and worry about the Fiscal Cliff, I try to stay positive, look at the bright side, see the glass as half full -- however you want to put it. As my good friend Bob Marley would say, "Don't worry about a thing, 'cause every little thing gonna be alright." Wise words to live by, in my opinion. Anyway, my point is that I'm not too worried about Washington; and I'm going to continue living and investing as usual. That being said, I'm looking forward to 2013; and to better do that, it helps to take a look to the past. So without further ado, here are my 3 favorite oil and gas stocks of 2012.

Phillips 66 (NYSE:PSX)

Phillips 66 is a refiner, marketer, and transporter of crude oil and petroleum products, and is also engaged in the production of chemicals. As many of you may be aware, Phillips was spun off of ConocoPhillips (NYSE:COP) earlier this year, May 1, to be precise. Right from the start, I felt that Phillips was the more compelling buy of the two, and coincidentally my first article discussed this in some detail. What makes Phillips even more interesting is that Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) invested in the company, undeniably an assuring sign. Buffett's interest is a strong indicator that Phillips will be a great long-term value stock for investors as patient as himself. And if you've held the stock since the spin off, you're lucky enough to be up over 53%, which seems to be only the beginning, if you heed Buffett's move.

Here are some statistics for you number guys and gals out there:

  • Market Cap: $32.52 billion

  • Current Share Price: $51.97

  • 52-Week Range: $28.75-$54.32

  • Trailing P/E: 6.00

  • PEG: 1.25

  • Price/Book: 1.59

  • Profit Margin: 3.19%

  • Total Cash: $4.43 billion

  • Total Debt: $7.98 billion

  • Dividend (%): $1.00 (1.9%)

Seadrill Limited (NYSE:SDRL)

Seadrill provides offshore drilling services to oil and gas companies through its fleet of various rigs and drillships. What attracts most people to Seadrill is its mind-boggling dividend yield of 9%; and what deters most people is Seadrill's massive debt load. How long can a company last with such a high dividend payout and so much debt? For a great in-depth analysis of Seadrill's debt, I recommend reading Jeff Williams' article on the subject. In my case, the dividend was too tempting to pass up; and Seadrill's growth in the lucrative offshore drilling industry was also very attractive to me, enough so to make the debt seem acceptable. Also, Seadrill just recently formed an MLP, Seadrill Partners (NYSE:SDLP), in order to take on an (even more) aggressive growth strategy in addition to highly leveraged financing through debt. Seadrill is a company that takes risks to maximize shareholder value; and it may not be the smoothest ride along the way, but a fat check every three months should ease any sleepless nights.


  • Market Cap: $17.57 billion

  • Current Share Price: $37.45

  • 52-Week Range: $31.37-$42.34

  • Trailing P/E: 17.67

  • PEG: 0.69

  • Price/Book: 2.87

  • Profit Margin: 23.79%

  • Total Cash: $764 million

  • Total Debt: $11.67 billion

  • Dividend (%): $3.40 (9.2%)

National Oilwell Varco, Inc. (NYSE:NOV)

National Oilwell Varco produces various components and systems for the production of oil and gas, and provides services to oil and gas companies throughout the industry. NOV hasn't had a stellar 2012; but the stock's performance doesn't accurately reflect the company's fundamentals. Warren Buffett would have said, "Price is what you pay. Value is what you get." Those words never have been so true as in the case of NOV. And speaking of Buffett, Berkshire Hathaway happens to have a sizeable stake in the company. National Oilwell's fundamentals are strong, and the company is trading at a steep discount compared to industry stalwart Schlumberger (NYSE:SLB). NOV is also expanding aggressively through smart acquisitions, such as the acquisition of CE Franklin over the summer. At such cheap valuations, National Oilwell Varco is definitely a great deal and a screaming buy going into 2013.


  • Market Cap: $28.95 billion

  • Current Share Price: $67.82

  • 52-Week Range: $59.07-$89.95

  • Trailing P/E: 12.05

  • PEG: 0.73

  • Price/Book: 1.49

  • Profit Margin: 12.88%

  • Total Cash: $1.70 billion

  • Total Debt: $1.53 billion

  • Dividend (%): $0.52 (.80%)

So there you have it, my three favorite oil and gas stocks of 2012. Each company has its own benefits as well as shortcomings, and you should take that into consideration before making any decisions.

Disclosure: I am long PSX, SDRL, NOV, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.