Warren Buffett recently added National Oilwell Varco to Berkshire Hathaway’s portfolio. This company is part of the oil and gas industry, and they have many different products and services that support this business. Some of the things they do include downhole solutions, corrosion and tubular control, handling and lifting, industrial work, production work, supply chain, completion and well service, drilling and engineering as well as project management.
NOV is currently pursuing a strategy of growth by acquiring other businesses. Over the last 15 years, this company has acquired roughly 300 businesses. They actually have undergone nine business acquisitions just in the first half of this year alone. They have an entire staff that is strictly dedicated to finding and acquiring new businesses for the company. They obviously have the experience and knowledge to find good companies to purchase, and then buy them so that they can integrate them into their current business model.
As we all know, Warren Buffett truly understands the value of a good business when he sees it. National Oilwell Varco is obviously undervalued at this current time since their forward P/E ratio is 11.27, they currently boast a PEG of 0.79 and their price to book value of 1.73 makes it seem like it is an excellent time to open up a position in this company if you are a long-term investor.
I also want to point out that National Oilwell Varco possess a market cap of $32.67 billion, as well as a profit margin of 13.6% which obviously reaches the double digits. The operating margin is at 19.82%, and the operating cash of this business over the last year was $939 million. They have an excellent balance sheet where their total cash is $1.92 billion, and their total debt is only $1.45 billion. The current ratio is at 2.01.
The projected earnings growth of National Oilwell Varco is also very much in line with the way that Warren Buffett likes to invest in businesses. It is projected that they will continue their 15% compounded annual growth rate, and this figure comes from a combination of their earnings growth plus the dividends that they pay. It is anticipated that NOV is going to grow their earnings annually by a total of 16.25% over the next five-year period. They also pay out a very modest dividend of 0.60%, which gives investors a potential CAGR of 16.85%. If you were to invest $10,000 into national Oilwell Varco at this time, you can expect your money to grow to $21,000 over the next five years.
The thing that Warren Buffett probably likes the most about the company is that its long-term prospects are excellent. It becomes more difficult to extract gas and oil in new areas so companies will need better drills if they are going to be able to do deeper digging. There is also a need for horizontal wells and highly deviated wells. NOV has lots of different solutions and tools that will certainly help their customers get these jobs done. They also provide their customers a tremendous infrastructure, as well as support, throughout the entire extraction process of fossil fuels. Their current backlog at the end of the second quarter is $11.3 billion, and $4.9 billion of that is going to be part of the 2012 earnings.
The overall look at National Oilwell Varco tells me that it is a very good investment for the long term. It provides excellent support and various tools throughout the entire gas and oil industry, and it gives these companies the ability to get to harder to reach areas when they are drilling. It is fairly obvious that Warren Buffett recognizes this entire opportunity, and since he just purchased the stock we know he plans on capitalizing on it.