Recent Purchase – National-Oilwell Varco, Inc (NOV)

It has been just over a month when I initiated a position in NOV on 3/24/2015. I had purchased 30 shares at $49.00 a month ago. Since then I have been looking to add more to the energy sector and was looking at stocks like XOM and CVX.

Apparently, the stock increased by over 10% since my purchase last month. I didn’t want to pursue it at that price and was looking at XOM and/or CVX for my next energy purchase. But early this week, NOV announced their quarterly numbers and even though the company exceeded the expectations, the stock took a beating due to lower outlook as well as lower backlog of orders.The stock dropped back to the $50 range on Tuesday after the results and I used up the opportunity to add more to the stock at reasonable levels.

Here is the quote from Yahoo about the results.

Revenues for the first quarter of 2015 were $4.82 billion, a decrease of 15.6 percent from the fourth quarter of 2014 and a decrease of one percent from the first quarter of 2014. Operating profit for the quarter, excluding the other items, was $692 million, or 14.4 percent of sales. EBITDA for the first quarter, excluding other items, was $837 million, or 17.4 percent of sales, down 18.1 percent from the prior year.

Rig systems is one of the main revenue drivers for the company and this is obviously at risk due to the continued weakness in oil prices. CEOs of energy firms predict lower prices for the next few years. A big reason for the stock price decline is the reduction in backlog and poor outlook. Here is the quote from yahoo about backlog.

Backlog for capital equipment orders for the Company’s Rig Systems segment at March 31, 2015 was $10.43 billion, down 17 percent from the fourth quarter of 2014, and down 31 percent from the end of the first quarter of 2014. New orders during the quarter were $236 million, which were partly offset by $99 million in foreign currency exchange adjustments in the quarter.

I purchased 15 shares of NOV at $50.50 on 4/28/2015. With commission, the total cost comes to $764.50. With a quarterly dividend of $0.46/share, the yield on cost comes to 3.61% and this purchase adds $27.60 to my forward annual dividends. This NOV purchase is slightly higher than my previous one and therefore decreases my overall yield on cost for NOV from 3.73% to 3.69%.

This purchase is lower than my usual range of ~$1500 because this purchase was made in my IRA account and I just had about $800 remaining in my IRA after I made my 2014 contributions.  I generally make IRA contributions towards the end of the year and therefore, I had to just invest what I had left. I still have little over $2000 in my spouse’s IRA account and looking to invest that in the next few weeks.

Morningstar has a fair value of $66.00 for the stock and it is rated 4 stars.

This purchases increases my total annual projected dividends to $2,634.88.

The portfolio page will be updated soon to reflect this purchase.

Disclosure: Long on all stocks mentioned above

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4 thoughts on “Recent Purchase – National-Oilwell Varco, Inc (NOV)

  1. Congrats on adding to your growing dividend total! Be careful with the oil related companies “beating” the estimates. Their estimates have been dropped significantly from last year so their beats are really not very good results.

    • Thanks ADD. You are right. “Beating” results don’t mean anything with lowered expectations. But I hope that these issues are just in the near term (1-2 years maybe) and then the companies will return to their increased profitability (either due to oil prices or better executions/margins etc). Let’s see.

  2. I think NOV is overvalued and my screener shouts “avoid”. I like the dividend yield, it’s dividend growth is also interesting and 4 years of increases is also good considering that this company is involved in oil business. I think it’s a good oil play, but normally I wouldn’t buy it because of valuation.

    • Hi Martin,
      The forward P/E is in the 17 range and is higher than some other stocks in the sector. But this is still in par with the overall market. The stock is definitely under pressure in right now due to oil prices, but I am hoping that it will improve in the next couple of years.

      Thanks for stopping by and sharing your thoughts.

      Regards,
      DGJ

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