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

Sniffing out the "OPEC's Worst Nightmare" solution to "Energy Tech’s Unsung Hero — Your Inside Scoop on the #1 Investment No-Brainer of the Century.”

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!”

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.

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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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blinky
Guest
blinky
May 22, 2014 10:44 am

to be fair, NOV is at $82, up 19% the past year, and outperforming S&P and DJ.

Bakermre
Member
Bakermre
May 22, 2014 3:20 pm

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?

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Lahalsa
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Lahalsa
August 15, 2014 11:41 am
Reply to  Bakermre

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!

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glen walters
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glen walters
February 2, 2015 11:05 am

I saw nothing in Rep. Jenkins Sat address that was new, just a rehash of old GOP proposals. Kissing up to Boehner is probably a losing proposition. If their answer to jobs is the Keystone pipeline, then you have no plan. There are 2 sides to the Keystone pipeline and I believe you are on the wrong side. I will try to layout the short comings of Keystone. Why are the GOP so adamant about the Keystone pipeline
People. They don’t have any other answers for energy independence. Obama has reduced US dependency on foreign by over a million barrels a day. I believe the answer is(Algae), you might research that if you really want to make a difference. What has the Congress done. Last February, ED Schultz, MSNBC started talking about the Keystone XL pipeline
and he went to the middle of the country to get the real story. He has
followed this project nearly every step of the way for almost a year. After closer investigation, he changed his mind And
after six years of environmental studies, legislative wrangling and legal
maneuvers, President Obama has taken a stand.
Subject: KEYSTONE PIPELINE IS A GOP MYTH, FULL OF FALSE ASSERTIONS
Key Facts on Keystone XL
Energy Security: Tar Sand will not Reduce Dependence on Foreign Oil
Keystone XL will not lessen U.S. dependence on foreign oil, but transport Canadian oil to American refineries for export to overseas markets.
Keystone XL is an export pipeline. According to presentations to investors, Gulf Coast refiners plan to refine the cheap Canadian crude supplied by the pipeline into diesel and other products for export to Europe and Latin America. Proceeds from these exports are earned tax-free. Much of the fuel refined from the pipeline’s heavy crude oil will never reach U.S. drivers’ tanks.
Reducing demand for oil is the best way to improve our energy security. U.S. demand for oil has been declining since 2007. New fuel-efficiency standards mean that this trend will continue once the economy gets back on track. In fact, the Energy Department report on Keystone XL found that decreasing demand through fuel efficiency is the only way to reduce mid-east oil imports with or without the pipeline.
“Exporting Energy Security: Keystone XL Exposed”, Oil Change International
Gas prices: Keystone XL will increase gas prices for Americans—Especially Farmers
By draining Midwestern refineries of cheap Canadian crude into export-oriented refineries in the Gulf Coast, Keystone XL will increase the cost of gas for Americans.
TransCanada’s 2008 Permit Application states “Existing markets for Canadian heavy crude, principally PADD II [U.S. Midwest], are currently oversupplied, resulting in price discounting for Canadian heavy crude oil. Access to the USGC [U.S. Gulf Coast] via the Keystone XL Pipeline is expected to strengthen Canadian crude oil pricing in [the Midwest] by removing this oversupply. This is expected to increase the price of heavy crude to the equivalent cost of imported crude. The resultant increase in the price of heavy crude is estimated to provide an increase in annual revenue to the Canadian producing industry in 2013 of US $2 billion to US $3.9 billion.”
Independent analysis of these figures found this would increase per-gallon prices by 20 cents/gallon in the Midwest.
According to an independent analysis U.S. farmers, who spent $12.4 billion on fuel in 2009 could see expenses rise to $15 billion or higher in 2012 or 2013 if the pipeline goes through. At least $500 million of the added expense would come from the Canadian market manipulation.
“Tar Sands Oil Means High Gas Prices” Corporate Ethics International. With a cost of 60 dollars a barrel to extract and oil today is less than 50 dollars a barrel doesn’t make a lot of sense.
“Pipeline Profiteering” National Wildlife Federation
Jobs: TransCanada’s jobs projections are vastly inflated.
In 2008, TransCanada’s Presidential Permit application for Keystone XL to the State Department indicated “a peak workforce of approximately 3,500 to 4,200 construction personnel” to build the pipeline.
Jobs estimates above those listed in its application draw from a 2011 report commissioned by TransCanada that estimates 20,000 “person-years” of employment based on a non-public forecast model using undisclosed inputs provided by TransCanada.
According to TransCanada’s own data, just 11% of the construction jobs on the Keystone I pipeline in South Dakota were filled by South Dakotans–most of them for temporary, low-paying manual labor.
Amalgamated Transit Union (ATU) and the Transport Workers Union (TWU) both oppose the pipeline. Their August 2011 statement: “We need jobs, but not ones based on increasing our reliance on Tar Sands oil. There is no shortage of water and sewage pipelines that need to be fixed or replaced, bridges and tunnels that are in need of emergency repair, transportation infrastructure that needs to be renewed and developed. Many jobs could also be created in energy conservation, upgrading the grid, maintaining and expanding public transportation—jobs that can help us reduce air pollution, greenhouse gas emissions, and improve energy efficiency.”
“Transcanada’s Exaggerated Jobs Claims for Keystone XL” National Wildlife Federation
Safety: A rupture in the Keystone XL pipeline could cause a BP style oil spill in America’s heartland, over the source of fresh drinking water for 2 million people. NASA’s top climate scientist says that fully developing the tar sands in Canada would mean “essentially game over” for the climate.
The U.S. Pipeline Safety Administration has not yet conducted an in depth analysis of the safety of diluted bitumen (raw tar sands) pipeline, despite unique safety concerns posed by its more corrosive properties.
TransCanada predicted that the Keystone I pipeline would see one spill in 7 years. In fact, there have been 12 spills in 1 year. The company was ordered to dig up 10 sections of pipe after government-ordered tests indicated that defective steel may have been used. Keystone XL will use steel from the same Indian manufacturer.
Keystone XL will cross through America’s agricultural heartland, the Missouri and Niobrara Rivers, the Ogallala aquifer, sage grouse habitat, walleye fisheries and more.
The agency was not adequately accounting for threats to wildlife, increased pollution in distressed communities where the crude may be refined, or increases in carbon emissions that would exacerbate climate change, and a variety of other issues.
“Tar Sands Pipeline Safety Risks”, National Wildlife Federation, NRDC, Others.
“On Shore Oil Disasters”, National Wildlife Federation
“Analysis of Frequency, Magnitude and Consequence of Worst-Case Spills From the Proposed Keystone XL Pipeline” John Stansbury, Ph.D., P.E.
“Pipeline “Safety Conditions” are Smoke and Mirrors”, NRDC
Climate Change: Keystone XL is the fuse to North America’s biggest carbon bomb.
In a study funded by the Rockefeller Foundation, a group of retired four-star generals and admirals concluded that climate change, if not addressed, will be the greatest threat to national security.
The State Department Environmental Impact Statement fails to adequately analyze lifecycle greenhouse gas (GHG) emissions caused by the pipeline. Extraction and refinement of oil sands are more GHG-intensive compared to conventional oil. The EIS estimates that the additional annual GHG emissions from the proposed pipeline could range from an additional “12-23 million metric tons of CO2 equivalent… (roughly the equivalent of annual emissions from 2 to 4 coal-fired power plants)” over conventional crude oil from the Middle East. [8] The EPA believes that the methodology used by the State Department is inaccurate and could underestimate GHG emissions by as much as 20 percent.[9] Given that the expected lifetime of the Keystone XL pipeline is fifty years, the EPA notes that the project could yield an extra 1.15 billion tons of GHGs using the quantitative estimates in the EIS.[10]
Resolution Urging the President to Reject Tar Sands Pipeline
Submitted by: Heather R. Mizeur (MD), Rep. Mike Honda (CA), Maggie Allen (ME), Rachel Binah (CA), Gilda Cobb-Hunter (SC), Pat Cotham (NC), Carol Pensky (MD), Oscar Ramirez (MD), Valerie Rongey (WA), Garry Shay (CA), Barbra Casbar Siperstein (NJ), Sam Spencer (ME), Rick Stafford (MN), Vicki Hansen Thackray (Luxembourg) Resolution Urging the President to Reject Tar Sands Pipeline
WHEREAS, President Obama is expected to make a decision by the end of this year regarding a proposed 1700-mile “tar sands oil” pipeline (known as the Keystone XL pipeline) across Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas to be built by the Canadian company TransCanada, connecting the tar sands region in Alberta province in Canada to Gulf Coast oil refineries in Texas.
WHEREAS, The first portion of the Keystone system, which opened in 2010 and runs from Canada down through the Dakotas, Nebraska, Kansas, and into Oklahoma, spilled 12 times in its first year of operation, dumping over 30,000 gallons of crude oil; and,
WHEREAS, According to TransCanada’s own assessments, a leak of more than 50 gallons on this Keystone I pipeline was supposed to be a “once every seven years” occurrence; and,
WHEREAS, The substance that would be carried in the Keystone XL pipeline, diluted bitumen, was described in a joint report by NRDC, the Pipeline Safety Trust, the National Wildlife Federation and the Sierra Club as “a highly corrosive, acidic, and potentially unstable blend of thick raw bitumen and volatile natural gas liquid condensate;” and,
WHEREAS, A “Tar Sands Safety Risks” report specifies that diluted bitumen contains up to 50 times higher acid concentrations than conventional crude oil and up to 10 times as much sulfur and that “the additional sulfur can lead to the weakening or embrittlement of pipelines;” and,
WHEREAS, The Administrator of the Pipeline and Hazardous Materials Safety Administration, Cynthia Quarterman, stated in a July 2011 Congressional hearing before the House Energy and Commerce Committee on pipeline safety that a study of the safety of tar sands oil pipelines has not been done; and,
WHEREAS, The Keystone XL pipeline would run directly through the Ogallala aquifer, which supplies one-third of our nation’s ground water used for irrigation and drinking water for two million people; and,
WHEREAS, The process of tar sands extraction represents the potential destruction of the Boreal forests under which it is found, may lead to high rates of cancer and other illnesses among local communities, may pollute the Athabasca River, and may kill nesting migratory birds and many other species; and,
WHEREAS, Vice-President Al Gore has stated that “the tar sands are the dirtiest source of fuel on the planet. The pipeline would be an enormous mistake. The answer to our climate, energy and economic challenges does not lie in burning more dirty fossil fuels;” and,
WHEREAS, Cynthia Giles, EPA Assistant Administrator for Enforcement and Compliance Assurance, wrote in a July 16, 2010 letter to the Department of State that “we estimate that greenhouse gas emissions from Canadian oil sands crude would be approximately 82% greater than the average crude refined in the US, on a well-to-tank basis;” and,
WHEREAS, James Hansen, our nation’s leading climate scientist, has stated that if the tar sands are fully developed, “it is essentially game over” as far as solving the climate crisis; and,
WHEREAS, James C. Little, President of the Transport Workers Union, and Larry J. Hanley, President of the Amalgamated Transit Union, representing 300,000 workers in the US, issued a statement calling upon the Obama administration “NOT to approve the construction of the Keystone XL pipeline or to take any actions that lead to the further extraction of tar sands oil from Alberta;” and,
WHEREAS, 1,252 people from nearly every state in the United States were arrested in front of the White House in acts of nonviolent civil disobedience between August 20 and September 3 calling upon President Obama to reject the Keystone XL pipeline; and,
WHEREAS, a recent Cornell University Global Labor Institute analysis found that because of projected fuel price increases, likely oil spills, and minimal local job creation, the Keystone XL Pipeline may eliminate more jobs than it creates; and,
WHEREAS, The leaders of this country’s major environmental groups, including NRDC, EDF, Sierra Club, NWF, Union of Concerned Scientists, 350.org, League of Conservation Voters and others issued a statement that “there is not an inch of daylight between our policy position on the Keystone Pipeline and those of the very civil protesters being arrested da