Thursday August 09, 2012
by Stephen Leeb, editor The Complete Investor
National Oilwell Varco (NOV) has been a recommendation in our growth portfolio’s high-risk category, but we’re shifting this stock to the medium-risk category.
The growing call on non-conventional oil has spurred demand for the increasingly sophisticated equipment needed to extract it.
There is broad-based consensus that the marginal cost of producing an extra barrel of oil is
approaching $100 and rising. As producing oil become an ever costlier challenge, the demand for oil services will rise.
National Oilwell can offer both quantity and quality— providing, for instance, more of the large ships with the greater technological capabilities required for drilling in ultra- deep waters.
The Deepwater Horizon disaster, which forced offshore drillers to pay more attention to safety, has created a multibillion-dollar business in blowout protectors. And the company benefits from accelerating demand for rigs to perform horizontal drilling, a market that didn’t exist a decade ago.
Moreover, as the low-hanging fruit in the fracking arena is picked, the oil industry will be avid for the biggest, sturdiest rigs. Over the past several years the number of fracking stages associated with a well has jumped from three to 13.
Another potential source of business could be Arctic drilling, now in its infancy: drilling in these remote waters will require special equipment and safety procedures, which will be a boon to National Oilwell.
The stock has compelling metrics. Current free cash flow yield is close to 10 percent and based on the current share price could easily exceed 15 percent by mid-decade.
Mid-decade profits could reach $10 a share, pointing to a company that is ridiculously undervalued. We recommend aggressive accumulation of shares.
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