Last week I continued my energy sector stock acquisitions. I purchased 30 shares of National-Oilwell Varco, NOV at $61.85 per share, totaling $1,855.55. This purchase provides an additional $55.20 in dividends to my Dividend harvest. I plan on holding National-Oilwell Varco and using DRIP to continue building on my position.
Why Purchase National-Oilwell Varco?
Why not? I am long on energy and energy is cheap right now. National-Oilwell Varco is not an oil producer. NOV is a provider to oil producers, think everything you need to drill for oil. From a consumer staples perspective, they are the Wal-Mart of oil production. Some refer to NOV as “No Other Vendor.” I like the sound of that :-). No other vendor means that oil producers are forced to work with NOV if they want to keep producing.
Fundamentals and Valuation
I believe that National-Oilwell Varco is a great addition to my portfolio. The company has strong profitability and financial stability, two metrics I look for when making a purchase for the long haul. NOV has a P/E Ratio just over 10, which is below the S&P average and a discount even for NOV. This indicates a sale to me. The stock is undervalued, probably because of uncertainty in oil values and the drop in crude per barrel pricing. NOV operates relatively debt free, has massive cash reserves and has contracts in place to ensure future revenues. My calculations show a five-year compound annual growth rate, CAGR of 58.3% and a Chowder rule score of 61.5. Both of these metrics are impressive. Even more impressive is a stock buyback strategy that NOV has put in place to buy back $3 Billion in stock. Lastly, National-Oilwell Varco’s dividend payout percentage is low, 32%, which leaves plenty or room for future increases in dividends and protection against reducing dividends while the energy sector is down.
What are your thoughts on the energy sector in 2015? Do you have an opinion on National-Oilwell Varco? Please share your thoughts.
Full Disclosure: Long NOV