This article is part of our Rising Star Portfolios series.
Like many of my fellow Fools, I view the recent market chaos as a great buying opportunity for some quality names out there that have fallen more than I think they should have. Tomorrow, then, I'll be buying one new stock for my Rising Star portfolio and also adding to one of my existing positions.
Time to get oily
I've long been a fan of National Oilwell Varco
Why buy: The business has a forward P/E of 14, strong growth prospects, and a solid balance sheet. It's a regular on my energy services industry value screen, which is designed to find promising stocks while avoiding value traps.
National Oilwell Varco has many competitive advantages, including the economies of scale that come with being a $29 billion large cap with the dominant position in the industry. In fact, Morningstar estimates the company has a 60% share in the rig equipment market and that 90% of all rigs carry at least some of its equipment. All of this breadth and dominance provides another big advantage: Rather than buying various parts from different suppliers, it's very easy and efficient for customers to rely on National as a one-stop shop.
I'm also very excited to get some exposure to oil and gas in my portfolio. This offers a great form of diversification, as National Oilwell Varco will generally benefit from rising oil prices, which of course tend to dampen growth with most other businesses in the form of rising costs.
Risks: The company reached its current dominant position through a combination of organic growth and acquisitions. Management plans to continue this strategy for the foreseeable future and made 12 purchases in 2010 alone for a total of $556 million. There's always the risk with this strategy of overpaying, or that some acquisitions will not integrate well into the existing company. But National Oilwell Varco's management has been doing this for years and has the process down.
There are some quality competitors out there that also have deep pockets, notably McDermott
Finally, all of these companies are obviously affected by the ups and downs of the industry, and these stocks can take a hit when energy prices swing downward or when catastrophic events take place, such as the recent Gulf drilling moratorium caused by the Deepwater Horizon disaster.
National Oilwell Varco is off nearly 20% since the market started getting jittery about debt ceilings and defaults. I'm ready to start off with a half position, or about 2.5% of my portfolio's first-year value.
I bought semiconductor equipment maker Kulicke & Soffa
My original investing thesis still holds. Among its strengths, K&S is leading the way in the industry's transition to lower-cost copper wire, instead of gold, for wire bonding processes.
I like management's practice of working closely with end customers -- names such as Samsung, Micron Technology
Trying to get a handle on where this business or the industry is heading in the short-term is a losing game. The third quarter turned out better than management expected, but CEO Bruno Guilmart lowered guidance for current fourth quarter -- and that's why we're 20% lower than our initial purchase price. K&S is definitely beholden to macro events and will continue to see its ups and downs, but I'm adding more shares with the knowledge of where this company can be five years down the road.
With this purchase, I'll be filling out a full position in K&S. Both of these buys will go through sometime tomorrow. If you're interested in either of these companies, add them to our free My Watchlist service by clicking the links below.
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).