First Eagle is Long in National Oilwell

In this article, let's take a look at National Oilwell Varco, Inc. (NOV, Financial), a $20.36 billion market cap company, which is a company that designs and manufactures drill rig equipment, provides down hole tools and services, and also provides supply chain integration services to the upstream oil and gas industry.

Largest Shareholder

Jean-Marie Eveillard (Trades, Portfolio) is the largest shareholder of the stock, with 13.54 million shares, worth $887.28 million. The shares were upped by 20% on the quarter, and the stake represents 2.15% of Mr. Eveillard´s portfolio. The famous investment guru initiated a stake in the company with 1.3 million shares during the first quarter of 2013. It is important to mention that the stock lost about 29% since then, and the guru constantly increased his stake to the actual position.

Revenues, Margins and Profitability

Looking at profitability, revenues increased by 7.67% but earnings per share decreased in the most recent quarter compared to the samequarter a year ago ($1.39 vs $1.46). During the past fiscal year, the company increased its bottom line. It earned $5.71 versus $5.09 in the previous year. For the next year, Wall Street is expecting a contraction of 34.5% in earnings ($3.74 versus $5.71).

Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

The company has a current ROE of 11.53%, which is higher than the industry median and the one exhibited by Baker Hughes (BHI, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Oceaneering International(OII, Financial) and Halliburton Co (HAL, Financial) could be the options. Core Laboratories (CLB, Financial) has an extremely good ratio. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.

Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 8.5x, trading at a discount compared to an average of 17.3x for the industry. To use another metric, its price-to-book ratio of 1.03x indicates a discount versus the industry average of 1.1x while the price-to-sales ratio of 0.96x is above the industry average of 0.82x.

As we can see in the next chart, the stock price has an upward trend in the five-year period and the stock is down by almost 28% over the last year.

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Final Comment

National Oilwell can improve its margin through specific actions, such as the focus on higher capacity drilling machinery and equipment, as well as expanding its non-capital upstream products business. Further, acquisitions are a very important and it has demonstrated a good ability to integrate multiple businesses in the past. As an example we can mention the acquisition of the former Distribution segment from Schlumberger (SLB).

The PE relative valuation and the return on equity that exceeds the industry average, make me feel bullish on this stock.

Hedge fund gurus like John Rogers (Trades, Portfolio), Robert Olstein (Trades, Portfolio), David Rolfe (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), David Dreman (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Jean-Marie Eveillard (Trades, Portfolio), Tom Gayner (Trades, Portfolio) have added this stock to their portfolios in the fourth quarter of 2014, as well as PRIMECAP Management (Trades, Portfolio) and Dodge & Cox.

Disclosure: Omar Venerio holds no position in any stocks mentioned