“Warren Buffett’s New Toy” Teased by Motley Fool

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The Motley Foolies are running an ad this week that teases us about a stock Warren Buffett has been buying — his “new toy” is something in the oil services business, and they’re calling it a “no brainer”.

Like many of their recent ads, this one’s signed by someone other than the Gardner brothers who run the Stock Advisor newsletter being pitched — it happens to be Bryan White this time around, he’s one of their analysts, and he’s saying that he expects this stock to skyrocket as soon as June 5 as a Congressional committee reviews the Safeguards Act of 2013.

So, naturally, a bit of urgency — after all, without urgency you could take a few minutes to check with your friendly neighborhood Stock Gumshoe and do your own research … but heck, if they’re saying it could skyrocket by tomorrow do you have time to wait?

Don’t worry, we’ll get you an answer before then. And I’ll throw in a little hint up front for you: it’s a $30 billion company, and usually with stocks that large you’ve got a bit of time to think things over before they “skyrocket” … depending, of course, on what your definition of “skyrocket” is.

So without further ado, here’s how the ad is introduced:

“Don’t Outsmart Yourself on This One…

“President Obama is powerless to stop it.

“Exxon, Shell, and BP are digging deep into their pockets for it. (In fact, they’re required by law to cough up $41,000 an hour.) And oil-drunk dictators from Russia, to Saudi Arabia, to Venezuela are hopping mad about it.

“It looks like an octopus wearing a Mardi Gras crown. It sounds like 1,000 Harley Davidsons revving up at a green light. And it feels like the no-brainer investing opportunity of the century.”

So that’s Warren Buffett’s “new toy” — how about some more details from the ad?

  • “If a company rents out its high-tech tools for $41,000 an hour… and demand is so hot that the line to get them is three years long…
  • If Warren Buffett’s investment company Berkshire Hathaway has already bought 2.19 million shares of its stock this spring… without breathing a word about it to anyone in public…
  • If it’s positioned front and center at the intersection of the two biggest energy mega-trends to come along in a century… helping to make the United States a net exporter of oil by the end of 2013… and completely energy independent within a decade…
  • If Obama is waving the white flag on trying to stop it… because he’s happy enough that it’s forcing Big Oil companies like Exxon, Shell, and BP to clean up their environmental act…
  • If it’s making Venezuelan dictator Hugo Chavez spin in his grave… and hanging other anti-democratic dirtbags like Vladimir Putin & the Saudi Arabian royal family out to dry for good…

Then I’m investing!”

Irregulars Quick Take
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Well, if you’re at all savvy in the ways of the SEC and their filings and have a few minutes to kill, that’s enough to feed your own personal Thinkolator, should you have one lying around in the garage — you can just check Berkshire’s quarterly 13F filings to see what Warren Buffett’s company has been buying and selling over time and you’ll see which stock they added 2.19 million shares of in the last quarter (these are always dated reports — they come out 45 days after the quarter end, and unless the manager is a really major holder and therefore an “insider” they don’t have to report changes more frequently).

Should I let the cat out of the bag so early on here? OK, fine — this is National Oilwell Varco (NOV).

And yes, Berkshire Hathaway’s position in NOV increased by 2,189,500 shares in the first quarter of this year — that’s not one of Berkshire’s larger stock positions, so the likelihood is that the decisions on this are probably being initiated by one of the other investment managers that Berkshire brought on in recent years and not by Mr. Buffett himself (he tends to focus on the large multi-billion-dollar deals and investments and on the massive foundational holdings of the company) … though since the two managers, Todd Coombs and Ted Weschler, have recently been generating better returns than Warren’s stock picks perhaps that’s not a bad thing (that underperformance of Buffett is not surprising, of course, particularly in the short term — the new guys are managing far less money and don’t have old legacy positions with embedded gains).

Berkshire’s position in NOV was apparently initiated back in the second quarter last year, at prices averaging about $70 a share, which is where the stock is now — and I haven’t checked what prices they might have paid in the first quarter of this year as they increased the position, but the stock price ranged from about $66-74 during that quarter so the average cost for Berkshire is probably still near the current $70 price.

National Oilwell Varco is a pretty ubiquitous company in oil services, particularly in their core niche of high-tech equipment for drilling and completion operations. Reportedly 90% of the drilling rigs in operation now have some kind of NOV equipment on them, and though they do sell and lease rigs and provide a variety of oilfield services, their biggest profit driver is the high-tech equipment that’s used on all kinds of rigs.

And while international demand for rigs and equipment is apparently still growing in many regions where shale or horizontal drilling is just starting up (like Russia, where there’s a recent story about NOV angling for sales), NOV, like most of the drilling services and equipment companies, has seen tighter competition and slack demand for rigs in the United States and Canada over the last year or two as capacity was ramped up in many areas in anticipation of the continuing the shale boom but the natural gas-focused projects have in some cases been delayed or halted due to low prices.

So NOV has still been able to grow revenue year over year, but their earnings and earnings per share fell sequentially in this last quarter and are also down a bit year-over-year, which brought a miss on the last quarterly report and has helped to keep a lid on the stock price (though some of the underperformance was from what they call “one time” issues).

Which means it’s not a hot growth name or a big investor darling at the moment, but it has been a Motley Fool pick for years and has a strong market position, and it’s currently pretty inexpensive with a forward PE that’s slightly less than giant industry leader Schlumberger (SLB) and about the same as Halliburton (HAL) — none of those biggies has been growing earnings rapidly recently, but NOV has at least been growing sales a bit faster. Most of the larger oil services stocks have migrated to trading at a forward PE of between 10-12 or thereabouts, even firms that are struggling a bit more like Weatherford International (WFT), so the soft North American market has everyone somewhat worried about growth.

NOV pays a small dividend that tallies up at about 1.5% right now even after they announced a doubling of the dividend this past quarter, but they have been a consistent dividend raiser over the last several years and could easily pay out far more if they wished — that’s less than a 20% earnings payout.

Their balance sheet is excellent, with only a small debt position and a pretty low price/book ratio of 1.5, though a lot of that is from the big “goodwill” slug associated with the many smaller drilling technology companies they’ve acquired over the years. They tend to put their cash flow back into acquisitions, and they probably pay their executives too much and don’t have enough insider ownership for my preferences, but the Berkshire Hathaway position increase and their generally decent value right now is a nice notch in their favor, along with the strong market position and the likelihood that more high-tech drilling equipment will be required for the world’s oil explorers and producers in the years ahead.

Will the latest Congressional hearings about drilling technology cause these shares to spike this week? Well, that’s not so easy to predict but I’d be shocked if the stock moved aggressively based on whatever this new regulation or chatter about it might be.

The “Safeguards” act proposed in Congress is real, though that’s another of the idiotic acronyms that our elected officials seem to love so much — the full name is the “Secure All Facilities to Effectively Guard the United States Against and Respond to Dangerous Spills Act of 2013,’ and it seems to largely be about just that, tightening up the laws about preventing and dealing with oil spills. Not surprisingly, it was introduced by Bill Young, a Representative from Florida, where concern about oil spills is high — it has no cosponsors and the places I’ve checked indicate that it has no more than a 1% chance of being passed into law. The bill has been referred to committees and subcommittees, but I haven’t seen a hearing scheduled — there is a hearing on Thursday of a bill that wants to expand offshore energy exploration and production on the Outer Continental Shelf, though I don’t suppose one subcommittee hearing is suddenly going to move the ball on that extremely contentious issue.

Though frankly, whether this bill is passed or not, it would be surprising if any extension of offshore drilling weren’t accompanied by requirements for higher-tech equipment for stronger or more redundant safety and blowout/spill prevention, and I think it’s clear that offshore drillers in particular are focused on ordering newer or more upgraded rigs to make sure the equipment is as safe and low-liability as they can get — no one wants to be responsible for a major spill, or to be dragged through court and through the headlines over it for years as BP and Transocean and Cameron were for the Deepwater Horizon explosion and blowout.

Will that drive NOV’s earnings sharply higher in the near term? Well, that I don’t know — they do have equipment on thousands of offshore rigs, though they don’t own the rigs, and there are a lot of big and expensive rigs being built over the next few years that will feature NOV equipment (they can get hundreds of millions of dollars of equipment onto each one of the latest generation of deepwater rigs). On the flip side, the other competitors in the industry haven’t exactly been caught napping — Cameron has a joint venture deal with Schlumberger called OneSubsea that is pushing technology and services, and they seem to be growing as a competitor in bidding for big rig technology packages with manufacturers, so I don’t know if that will hamper their ability to win business. I have no idea what their technological advantage is in any of their specific equipment offerings. 

The target price of the average analyst for NOV is about $84, and the “fair value” cited by the Morningstar analyst is $85 (they called NOV’s Pete Miller their “CEO of the Year” last year, too, so they think management is excellent — though they cut their fair value from $98 after the last quarter’s weakness), so there’s certainly potential upside if those folks are right. It’s a strong company in a competitive business that’s driven to large degree by enthusiasm for oil and gas drilling — you can see what happened with the decreasing rig count in the US and Canada over the last year or so bringing earnings down for them and most of their competitors, so there are challenges from competing firms and competing technology advances, but my impression is that the biggest reasonable downside to fear for NOV is probably further weakness in gas or, in the worst case, simultaneously falling oil and gas prices that substantially decrease investment by oil companies.

The last time I wrote about this stock as a teaser pick was more than two years ago, and at the time it carried more of a premium valuation and a share price about $10 above where it now stands … I’m more comfortable with it now that it’s lost some of that premium valuation, but with most oil services stocks pretty cheap now you can’t say that it’s a real obvious bargain — then again, the cheapest stocks usually are a lot hairier than NOV, and there’s something to be said for Warren Buffett’s oft-quoted maxim that he’d rather buy a great company at a good price than a good company at a great price. (OK, the actual quote, from his 1989 letter, is “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”)

That’s all I can tell you about National Oilwell Varco and the Motley Fool’s tease of this stock — I don’t own it, it looks like a reasonable buy for the sector but I’m not going to buy it immediately, and your opinions and decisions, of course, are what matters for your money — so what do you think about this one? Is it really the “Number 1 Investment No-Brainer of the Century?” Let us know with a comment below.

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30 Responses to “Warren Buffett’s New Toy” Teased by Motley Fool


  1. another of the idiotic acronyms that our elected officials seem to love so much ,
    good one !! Maybe should have used idiotic twice in this sentence

    Like(0)

  2. I saw that one, and thought it was NOV. Thank you for confirming. Remember, they are the company — along with BP and HAL, that had some trouble in the Gulf, right?
    Is anyone buying along with Warren? Was this Buffett’s pick, or his new Team?

    Like(0)

    • No, NOV was not in trouble over Macondo. I believe you are remembering the 10-year plus, refurbished BOP originally built by CAM.

      Like(0)

  3. Warrens train with Obama is his best deal right now keeping the Keystone down keeps the oil tankers full and cost the tax payers $10 a barrel for oil to get shipped more than a pipeline. An extra 22$ Billion Warren just found out, that is capitalism and politics at it’s best and they scape goat the EPA and also they think big oil is making the money. Big oil pays more in taxes than there profit margin. Warren writes his off. Plus he builds the oil tankers. White House sleep over keeps the pipeline down and China happy. Our best friend Canada gets the shaft and he helps China. I wonder if Warren will buy an auto parts company for all the cars crossing RR Tracks shocks,tires,etc. or maybe a environmental clean up company when one of his oil trains derails and gets subsidized for the clean up but he is self insured. That will get some jobs cleaning up that oil spill. A new craft for the union The Oil Clean UP ENGINEERS. Sounds like a good union! But we need that bargin Bio fuel to, Black Gold, Dakota Tea come and listen to a story about a man named Pres. what a deal now Warren can help his secretary with her taxes.

    Like(1)

    • Yopu have this wrong. The Keystone pipeline WILL NOTmailk oil cheaper for Americans. It will make it cheaper to export more expensive for all the midwestern states it bypasses.

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    • Have I missed something regarding this Keystone pipeline?
      The last I knew, that Keystone pipeline isn’t going to bring 1 drop of oil into this country. It is solely for the purpose of transporting Canada’s oil to Houston to export it overseas. NONE of it is going to get to U.S. consumers. NONE! So all this talk about Obama not letting the pipeline through and Americans paying more at the pump is nothing more than political lies and distortion. Again.

      Like(1)

  4. If NOV is such a great share why does it not appear as a top holding in any of the 3 Motley Fool investment funds?

    Like(0)

    • Not a bad question. Though the Motley Fool does own NOV shares, it’s not in the top 20 holdings of any of the three MF mutual funds. Lots of their newsletter picks are not in those funds, of course, given the large number of letters they publish and the sometimes long lists of reccos by those letters. Bill Mann is the named portfolio manager for the three mutual funds and he used to actively contribute to some of the newsletters, but I don’t know if there’s currently crossover between the newsletter analysts and the mutual fund managers.

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  5. We need someone to visit the saloon nearest to the NOV engineering department to pick up some fresh scuttlebutt re new product etc. Any volunteers?

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  6. I do live in Oil Country. I have been informed that CAM equipment had not been properly intalled or implemented, or at least that was what they asserted inside of their legal replies. By the way, I wasted some $$ and some time subscribing to some of the Motley Fool materials and never made any $$. If I had sold my XOM and bought Lumber Liquidators I would have, per one of their recommendations. When they said that, I must confess that I “looked out the window.” I see XOM as a “core holding.”

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  7. Cathy Kandravi has said it just about right. It is a pity the mass media never zero in on this true explanation of all the nonsense Obama was spouting today (June 25) about the Keystone XL. Since July 14, 2010, when Obama and Buffett cut the deal, the XL has had the full environmental lobby treatment, with Saudi and Venezuelan funding as admitted by Canada’s David Suzuki on CBC TV. Isn’t it strange that Canadian Oil Sands crude is environmentally filthy, while imported Saudi and Venezuelan crude never get a mention by Suzuki and all his Grade B movie star entourage down by the White House mall? Saudi crude flows majestically, freely into Quebec and East Coast ports.
    I sold NOV on June 25, at a small gain from a $55 strike option, since it has been bouncing around $66 to $69 for some time, well below its high last spring. Motley Fool does feature NOV on its lists each month.

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  8. i notice that for all the hype motley really doesn’t do much better than what i think of as average … this stock as done nothing since they hyper-’promoted’ it

    Like(1)

  9. Funny, MF had this teaser at the end of an article on NOV! Article published 8/5/2013 entitled “Temporary Issues For This Energy Stock”.

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  10. What’s Bryan White doing recommending anything anyway? If you look at his Fool page his last stock advice activity was 2011, all but one of his stock picks listed show losses and there is a note at the top of the page saying:
    “Bryan has decided to discontinue his portfolio. Thank you for your interest. ”
    Enough said?

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  11. Excellent commentary on NOV, trains and future of North American oil . For further background, read the excellent article in The Globe & Mail Report On Business section, today, August 31, 20213. The Obama/Buffett Axis is still on track, rollin’ down the line to super profits. Yet lots of folks, from Quebec to Calgary, Ottawa, to St. John, N.B. and the Bay of Fundy are starting to have grave doubts about the safety and environmental purity of railway tanker trains trundling through village and town across this northern nation. Oil cargoes on trains are already declining and shall keep on doing so in the years ahead. Canada has heard Obama and is not impressed. Up in the True North, Strong and Free, we have our own version of :Manifest Destiny” and it does not lie on the road to D.C. Forget about the XL; it is less likely to survive than a beached whale. Eastward-Ho! Pipelines East is our new Canadian future.

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  12. Somehow I can’t get excited about a stock that Motley Fool admits they have touted three times already. If that’s not old news I don’t know what is.

    Which leads me to ask why MF thinks I would buy their “service” to get stale touts like that?

    Anybody who calls a commodity or a commodity-related company a no-brainer need to get a brain. Right now, and for the foreseeable future the Big Money banks have a vested interest in keeping commodity prices low in order to facilitate the Fed’s pumping dollars into the economy without inflation rearing its ugly head. Once inflation takes off, it’s game over for the Fed’s current policy, and that means the Big Money banks have to stop feeding at the Fed’s free money trough.

    Like(0)

  13. I’m new to this type of thread but I have been getting Motley Fool Teasers for years since I subscribed to their newsletter years ago. Are you all saying that their reported percentage gains on all those stock picks are not accurate? I thought these guys were known for their diligent research and good small cap stock picks…and that was why the catapulted into becoming a household term to small cap stock pickers….Someone please enlighten me if my read on these guys is wrong. I admit that anyone who alleges to go against the grain of Wall Street as these guys have seemingly done made me an instant fan but I wonder if I was too quick to be so enamored.

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  14. Hmmm… I just now got a newsletter from MF (January 13, 2014) with Bryan White touting this stock and referring to the pending passing of some house resolution… I think the Safeguard act… seems a little late. They’re still pumping this one?

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  15. I bought the Motley Fool brothers’ book back in the 1990s and greatly respected the way they encouraged individual investors to ignore the hype of the financial services sector, take responsibility for their own decisions and recognise that they could succeed by doing their own homework.

    Now, Motley Fool is filling my email inbox with over-hyped share recommendations like this one. They invariably involve a prolonged sales pitch that would take a good hour of my time (if I could be bothered to sit through it) and then leave you guessing – or buying some other product to get the answer. It seems to me that the organisation has turned to the “dark side” and is pitching the very rubbish that they were recommending investors ignore when they founded Motley Fool 20 years ago.

    Deeply disappointed.

    A

    Like(3)

  16. Travis, thanks for your chasing down the history of the “Fools” picks. Another of your notes dealing with SDRL was worth reading even though you were contemplating a possible sell. I tracked it and felt your take was a time to buy. I sold puts and they are doing quite well except for a 2 day journey lower (higher in cost). I will watch NOV. Thanks for your suggestions.

    Like(0)

  17. A lot of Motley Fool picks have performed badly. They were in a lot of momentum story stocks. I subscribe to their Adviser service and am disappointed. The market today is looking for real cash flow, real earnings, and real dividends. The Financial Newsletter space seems to love good “stories”. The future is unknown and people are seeking safety and income. Story stocks offer neither.

    3D printing is a great example. Great story but too many players. Even a solid stock like KO is suffering as people buy less soda while management seeks a greater share of the revenue. Why pay double for Coke when the store brand costs half as much?

    Like(1)

  18. I too once subscribed to M. F.; not any more. They have a habit of hyping a stock, like 3D, see it rise then crash/tank sharply lower and suddenly the hype stream of rhetoric grows silent, never to be heard again! 3D is off their radar, SILENCE!
    Porter Stansberry does the same with hype in reverse, telling us GE is equal to GM ; First Solar and all solar stocks are fatally flawed technically, set to go to zero like Solyndra, etc. When these “doomed” issues don’t collapse, but rise instead, steadily higher to double or more in a year or less, Porter plays possum: He’s too pooped to pop! The only thing about Porter then is silence, for him it’s golden. Maybe he and M.F. work out of the same offices?

    Like(0)

    • Interesting perspective! I’ve been to the offices of both — Porter’s offices are in the Agora network of restored historical homes in Baltimore, the Motley Fool is not so far away in Alexandria, VA, I used to live near the midpoint between the two of them at the northern edge of DC. The way I think of it, they represent the two main ways that newsletter empires have been built: The Fool’s was built on top of a large base of free web users and partly funded by advertising, Porter’s was built on the massive direct marketing prowess of Agora and their access to millions of email addresses.

      And yes, neither does a lot of crowing about their mistakes — though most of the rest of us suffer from similar historical blindness to one degree or another.

      Like(0)

    • Yes I’m a previous “Fool” subscriber and I agree with the “silence” aspect of their blunders. I bought AOB and China Med (CMED) on their recommendation – both have been delisted and gone bankrupt with loads of corruption discovered. Lost a bunch of $ on those two, however, I should have been paying closer attention to what was going on with them myself! I did buy NOV also at their recommendation in the $24 range several years ago and then sold at the $60 range…unfortunately, this did not recoup my losses in the other two stocks!

      Like(0)

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