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TheStreet Open House

National Oilwell Is Really Cheap at These Levels

NEW YORK ( TheStreet) -- If you are an investor who thought about National Oilwell Varco (NOV - Get Report) when it was priced at $84 a share, you're going to love buying it now. Shares closed on Wednesday at $76.46, down 3.9% on the year.

For that price you're owning a company that provides equipment and components for oil and gas drilling and production, oilfield services and supply chain integration services.

If you want to own the kind of company that Warren Buffet would buy, National Oilwell Varco is a good example. Buffett recently increased his stake to 7.5 million shares in the company. Perhaps its low forward (one-year) P/E ratio of 11 and a price-to-earnings-to growth ratio of 1 are two reasons why any value-minded investor would want to own shares of this company.

It also reported surprisingly good fourth-quarter and full-year sales and net income in spite of weak demand for land rigs. Fourth-quarter net income totaled $658 million, or $1.53 per fully diluted share. Earnings improved 3% compared to the third quarter of 2013.

The company did better than analysts expected on revenue, too. According to Yahoo! Finance, annual revenue was expected around $22.4 billion and came in at $22.77 billion. A big reason for the sales growth is its rig technology division.

National Oilwell sells complete, turn-key onshore and offshore drilling systems with precision, industry-standard parts, a big change from the past when offshore rigs were mostly custom-made for the company's clients -- resulting in hard-to-predict construction costs, among other problems.

By standardizing the process, National Oilwell has lowered costs, improved reliability and shortened the time it takes customers to order and receive replacement parts. This makes National Oilwell the go-to provider of floating production platforms and drilling rig systems that conform to industry standardization.

The following one-year chart helps illustrate both the investment opportunity National Oilwell Varco offers and why I'm bullish on its future share price.

NOV Chart
NOV
data by YCharts

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