Warren Buffett Goes Nuclear (BRK.B)
...Adding together MidAm's largest-utility-owned wind portfolio and their 3rd or 4th largest natural gas pipeline, Burlington Northern's largest-in-the-country coal hauler and 89 mil Bbl/yr. Bakken oil transport and the portfolio investments in National-Oilwell Varco.and Phillips 66 and you pretty much have as diversified an energy company as any in the country.Today it's the Barron's Feature:
Sitting on a Gusher of Opportunity
National Oilwell Varco is poised to grow rapidly in the next couple of years as the world's exploration for oil and gas gets more aggressive. Is it a $100 stock?
The one unsullied winner in last week's Obama-Romney debate was National Oilwell Varco, the country's biggest maker of drilling equipment for gas and oil rigs. While the candidates sparred over how many deepwater drilling permits the Obama administration has awarded, they agreed that the number must rise.The stock traded down 1.62% on Friday, $80.70 last.
More deepwater drilling—actually more drilling of just about any kind—is good for National Oilwell (ticker: NOV). It sells and produces drilling rigs and related fluids, rig technology, petroleum services, and supplies like transfer pumps, and provides maintenance, repair, and spare parts. Pushed along by more than 300 acquisitions in 15 years, its longtime CEO Merrill Miller has created the business' biggest product line, with as much as a 50% market share in some areas.
The long-term rise in oil prices and the world's unslaked thirst for new energy sources like shale has put the company in an enviable spot. "It's uniquely positioned to benefit from the convergence of several megatrends, namely the expansion of deepwater offshore drilling, immense onshore shale opportunities, and an impending replacement cycle of the 30- to 40-year-old rig fleet," says shareholder Todd Lowenstein of HighMark Capital Management.
National Oilwell stock has gained 25% to $82 in the past year, outpacing both the market and rivals' returns; its market value is $35 billion. The Houston-based company has enjoyed a double-digit gain in new orders so far this year, helping earnings rise an estimated 26% to $2.5 billion, or $5.96 a share, and revenues increase by 36% to nearly $20 billion. National Oilwell has met or beaten the Street's quarterly estimates for eight consecutive quarters.
As the intensity of the presidential debate suggests, the search for energy is a leading priority for the U.S. and the world. National Oilwell's backlog of orders is expected to reach $11.4 billion by the year's conclusion, up from $10 billion at the end of 2011. Based on the recent rate of profit growth, earnings easily could top $7 a share in two years, so long as the price of oil doesn't unexpectedly drop.
With earnings gains roughly matching the shares' rise, the stock still sells for less than 12 times forward earnings, compared with 14.6 for the oil-services group. Or using a metric of enterprise value—market value plus net debt—to earmings before interest, taxes, depreciation, and amortization, a popular measure among analysts trying to minimize the volatile effect of the company's many acquisitions on earnings, National Oilwell sells for only seven times the $5.1 billion analysts expect for Ebitda next year. That's cheaper than smaller peers like Cameron International (CAM) and FMC Technologies (FTI).
"You're looking at a $100 stock in two years," predicts Lowenstein. That's a gain of 25% over last week's level. He thinks National Oilwell should trade at a premium to these smaller companies, in light of its strong earnings visibility, 6% to 8% free-cash-flow yield, and prime market position.
THE GRITTY OIL-SERVICES COMPANY'S charms haven't eluded value investors or analysts. Warren Buffett's Berkshire Hathaway (BRK/A) bought 2.84 million National Oilwell shares at the end of June. Berkshire officials weren't available for comment, but National Oilwell CEO Miller views the investment as a "stamp of approval." As he puts it: "They understand the long-term nature of holding this stock."...MORE
One concern would be the recent price action.
From Yahoo Finance:
The all-time high was at $92.70 during the oil-price spike in early July 2008, it has traded over $90 for a total of 8 days since NO and V merged in 2005.
