NEW YORK ( TheStreet) -- If you are an investor who thought about National Oilwell Varco ( NOV) 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 data by YCharts
From both an analyst and an investor point of view, this kind of chart suggests the share price needs to catch up with the rising quarterly income from continuing operations as well as the company's consistently soaring revenue per share growth (red line).
What the market seems to be forgetting about National Oilwell is that sometime during the second quarter of this year the company will spin off its distribution business, which will be traded as an independent publicly traded company called "Distribution NOW."
The details of how this will benefit shareholders are pending, but the company did say that the Distribution NOW spinoff will benefit shareholders and "...will enable the distribution business and the remainder of NOV to have the enhanced operational flexibility to focus on their specific products, services and customers."
The spinoff will also give National Oilwell the additional capital to invest in its equipment and parts business, which offers higher profit and operating margins. My take on the other benefits of the spinoff include the possibilities of a substantial boosting of the current puny dividend and perhaps a stock buyback program to help propel the stock price higher while adding shareholder value.
When it eventually increases its dividend (I've calculated National Oilwell Varco could easily double its dividend since its latest payout ratio, according to information provided by Morningstar, is only 17% of its earnings), the stock price could move 30% higher or more.
In the meantime, the benefits of the impending spinoff will help reward investors for patiently waiting for the stock to ascend to the level afforded its competitors. It's not too late to get on board before shareholders experience these potentially big payoffs in the months ahead.
At the time of publication the author had positions in National Oilwell Varco
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.