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Earlier today I posted about how I purchased 105 shares of National Oilwell Varco (NOV) at $117.92. This purchase was enabled by my partial sale of Kyphon (KYPH) yesterday which, since I was below my maximum of 20 positions, 'entitled' me to add a new position to bring my portfolio up to the maximum of 20 positions that I recently established (from my prior portfolio size of 25 positions). NOV closed at $123.89, up $11.56 or 10.29% on the day.
Let's take a closer lok at this company and I will share with you why, as I wrote previously,
NATIONAL OILWELL VARCO (NOV) IS RATED A BUY
What exactly does this company do?
According to the Yahoo "Profile" on NOV, the company
"...engages in the design, construction, manufacture, and sale of systems, components, and products to the oil and gas industry worldwide. It operates in three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services."
How did they do in the latest quarter?
As we have seen in many of the stocks written up on this blog, it was the announcement of 2nd quarter 2007 results this morning hat pushed the stock higher early today. Revenue for the quarter increased 44% to $2.38 billion from $1.66 billion during the same period last year. Net income increased to $318.5 million or $1.79/share, up from $147.9 million or $.84/share last year. This was more than a 100% increase in earnings year over year!
In addition, the backlog increased to $7.2 billion compared with the $6.4 billion in backlog the previous quarter.
As reported, this result was $.25/share higher than the $1.54/share expected by analysts. The revenue came in at $2.38 billion while analysts had been expecting $2.2 billion.
How about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials on National Oilwell, we can see that revenue has steadily increased from $1.5 billion in 2002 to $7.0 billion in 2006 and $7.7 billion in the trailing twelve months (TTM).
Earnings have also increased, although they dipped from $1.30 in 2004 to $.60/share in 2005, from $.80/share in 2002 to $1/40/share in 2006 and $4.70/share in the TTM.
The company has increased its float from 86 million in 2004 to 175 million in the TTM. During the same period, revenue more than tripled while the shares increased by 100%.
Free cash flow has also been a little erratic, dropping from $127 million in 2004 to a negative $(28) million in 2005 than rebounding strongly to $1.01 billion in 2006 and $1.18 billion in the TTM.
The balance sheet appears solid with $1.2 billion in cash and $4.3 billion in other current assets. Compared to the current liabilities of $3.0 billion, the current ratio works out to a 'healthy' 1.84.
What about some valuation numbers?
Reviewing the Yahoo "Key Statistics" on National Oilwell Varco, we find that this is a large cap stock with a market capitalization of $22.00 billion. The trailing p/e is a moderate 26.13 and the forward p/e (fye 31-Dec-08) is estimated at a more reasonable 16.67. The PEG ratio (5 yr expected) is estimated at 0.63, well below my acceptable level of 1.0 to 1.5 in terms of valuation relative to growth.
According to the Fidelity.com eresearch website, valuation is also reasonabl in terms of Price/Sales. NOV comes in with a Price/Sales (TTM) of 2.57 compared to an industry average of 3.88 per Fidelity. However, the Retun on Equity (ROE) (TTM) is below the industry average at 17.01% compared ot the industry average of 30.61%.
Finishing up with Yahoo we can see that there are 177.61 million shares outstanding with 177.26 million that float. As of 6/12/07, there were 7.59 million shares out short representing 2.7 trading days of volume (the short ratio) or 4.3% of the float.
No dividend is paid per Yahoo. The last stock split reported on Yahoo was a 2:1 back on November 19, 1997.
What does the chart look like?
If we review the "point & figure" chart on National Oilwell Varco from StockCharts.com, we can see that the stock which was consolidating through the latter part of 2006 in the $52 to $67 level, broke through resistance in February, 2007, and the $65 level. The stock has moved relatively quickly to its current level of $123.89. The chart looks quite strong to me!
Summary: What do I think?
I have generally avoided investing in companies that are so dependent on the price of commodities like oil. Well, excep for Bolt (BTJ) which has indeed been a terrific investment, although quite volatile, for me.
Here is a chart of light crude oil.
You can certainly see the upward price pressure of oil supporting the strong move in all of these oil service companies like NOV.
In any case, National Oilwell Varco made a strong move today. Fortunately, I caught the move relatively early and achieved a buffer of almost five points the very first day. I would not be surprised to see some profit-taking tomorrow.
They announced earnings that were incredibly strong. Especially for a stock with a p/e in the mid 20's with earnings reported up over 100%. They beat expectations and have bene growing strongly for the last four or five years. Finally, valuation, while not perfect, isn't bad.
And the chart is quite strong as well.
I like the stock a lot. In fact enough to buy some shares! Wish me luck!
Thanks again for dropping by and visiting! If you have any comments or questions, please feel free to leave them on the blog. If you get a chance, be sure and visit my Stock Picks Podcast Website! Also, stop by and visit my Social Picks Page where Social Picks evaluates my many stock selections since early 2007 and evaluates my picking performance relative to many other bloggers and stock pickers! Finally, if you would like to see how my actual Trading Portfolio has been performing, you can visit my Covestor Page where Covestor, for the past two months, has been monitoring my actual trading account and holdings and evaluating my performance relative to other investors on the website.
Have a great Thursday everyone! Please remember that I do own shares in this stock, so take that into consideration. Also remember that past performance is not guarantee of future performance and that I am truly an amateur so please check with your own advisers prior to making any investment decision!
Bob