The one thing I can say for certain about Warren Buffett is that he typically gets his investments right.
And if you were paying attention, you would’ve noticed that he just made a new decision which has him picking up shares of National Oilwell Varco. Berkshire Hathaway recently added 2.8 million shares of this company to their overall portfolio, and they focus on drilling equipment in case you are wondering. This edition was made to the portfolio during the second quarter.
If you aren’t familiar with ticker symbol NOV, and I’d like to mention that they are an oil services company. This company is typically overshadowed by businesses such as Halliburton, Baker Hughes and Schlumberger. But they are an excellent company and they have even made some incredible acquisitions throughout the years. As a matter of fact, they have made over 300 purchases in the last 15 years alone.
National Oilwell Varco recently announced that they are involved in nine more takeovers, and six of them happened during the second quarter alone. This is the way that they strengthen their overall position in a very competitive business.
The last deal that they made was a $2.54 billion cash buyout of rival company Robbins & Myers. This is the biggest purchasing transaction that they have made since 2007, when they acquired Grant Prideco in the amount of $7.4 billion. And this deal is actually looking like it will be their most beneficial transaction to date as well.
It’s important to know that NOV is currently the leading manufacturer of blowout preventers. This is a type of oil drilling safety equipment that unfortunately gained credence during the BP oil spill that took place not that long ago.
Since that spill happened, there has been new legislation which passed that required two of these devices on each and every oil rig, whether they are onshore or offshore. NOV is the second-biggest supplier of these devices as far as the land drilling market is concerned. But now that they will be taking over Robbins & Myers, which happens to be the fourth largest in this area, it will now claim the biggest piece of this growing market as the dominant player.
Robbins & Myers actually has a process solutions business as well, and they are capable of selling reactors and storage units to chemical companies and pharmaceutical businesses through this division. It’s very important to note this the boom in natural gas has also increased the demand of ethane and propane, as well as other liquid chemicals. So this market is expanding into other areas of business.
The overall effect of this new addition to their bottom line is expected to bring about an extra $.25-$.35 per share. That is excellent when you are talking about a company whose revenue surged by 21%, and their income increased by 20% last year at this time. But better yet, NOV anticipates that there earnings growth will go up by 16.25% annually during a five-year period. Even though they have been acquiring many companies quite recently, they are still perfectly capitalized.
NOV currently maintains a profit margin of 13.6%, and their operating margin is at 19.82%. The operating cash flow that they have is $939 million. The balance sheet of this company is strong, and they have $1.92 billion in cash and just $1.45 billion worth of total debt.
There shares have rallied over 7% since the takeover announcement, the stock price of this company is still very much a steel. The current PE of the company is 14.64, and their price-to-book ratio is only 1.81. Their dividend yield is 0.6%. Plus, when you take into account that Berkshire Hathaway now owns it, the price is definitely going to move a lot higher because of this.
Two university professors conducted a study during 2007 which they titled Imitation Is the Sincerest Form of Flattery. This study showed us that every stock that Buffett bought, even if it’s only is a month later, will provide you with superior returns on your investment.
The study found that “A hypothetical portfolio that mimics Berkshire’s investments created the month after they are publicly disclosed… Earns positive abnormal returns of 14.26% per year.” So if you believe that you’re a smart investor, then you should follow Buffett’s lead and pick up some stock in National Oilwell Varco right away.
Would you like and find out what else Warren Buffett is up to? Berkshire Hathaway also added 27 million more shares of Phillips 66 to their portfolio. This comes as part of a Phillips spinoff from Conoco Phillips, and it’s a stock that Warren Buffett has had for many years. Berkshire Hathaway also liquidated their entire Intel position, and they let go of 64% of their position in Johnson & Johnson.
Please use this information and take it at face value.