I'm Buying This Energy Stock

On Friday, I covered five super-cheap growth stocks I was considering -- but ultimately passed on -- adding to my Roth IRA. Today, I reveal the company I'll be buying once I'm allowed: National Oilwell Varco (NYSE: NOV  ) .

My affection for this company is no secret, and my reasons for buying now are crystal clear:

1. National Oilwell has a solid business model and dominant stance in the market.

2. It is currently undervalued at today's price.

NOV = No Other Vendor
If you need a one-stop shop for organic food, where do you go? Whole Foods, naturally. What if you're about to drop your son or daughter off for his or her freshman year of college? When I was in school, Wal-Mart was a pretty safe bet to meet all of my needs.

Well, if you're a company that extracts oil from the earth, National Oilwell has become the place to go.  Oil behemoths such as ExxonMobil (NYSE: XOM  ) and oil-rig makers such as Transocean (NYSE: RIG  ) call on National Oilwell for everything from giant floating rigs to simple nuts and bolts.

By assuming a strategy of growth by acquisition -- which can, admittedly, sometimes be risky -- the company now has 825 locations on six continents to distribute its products. It even has its own supply stores on some rigs!

A safe bet
I knew that I wanted to get an energy stock for my Roth IRA; consumer fads come and go, but people will always need energy. And though there will be fits and starts along the way, the global economy looks to have a growing middle class -- which is good news for energy companies.

Initially, I took a good hard look at some interesting natural gas plays like Chesapeake Energy (NYSE: CHK  ) . The company recently announced a partnership with U.S. Steel (NYSE: X  ) whereby Chesapeake will build a natural gas fuel station for U.S. Steel's fleet of trucks.

Royal Dutch Shell also caught my eye, primarily because of a partnership it forged with Westport Innovations (Nasdaq: WPRT  ) -- a company that engineers automobile engines that can run on natural gas. Westport's CEO stated that because of the agreement, "the use of natural gas as a fuel for transportation [would] accelerate."

But in the end, I'd like to think of myself as an eclectic investor: Though I have some knowledge of the energy industry, I'm not the smartest one in the room. These natural gas companies could absolutely boom (or bust) over the coming years.

But there's one thing I'm sure of: The world will be using oil for years to come. And a transition to natural gas won't happen overnight. For that reason, I consider National Oilwell to be a very safe bet.

Undervalued
National Oilwell has some formidable opponents trying to knock it off the top of the mountain, but the company's current share price doesn't reflect this industry-leading position. Consider the following metrics:

Company

Forward P/E

Total Debt/Equity

PEG Ratio

National Oilwell Varco 9.3 3.0 0.79
Schlumberger (NYSE: SLB  ) 11.2 29.8 0.93
Weatherford 7.8 74.3 0.95

Source: Yahoo! Finance.

For now, the market seems to be ignoring the fact that National Oilwell has a stronger balance sheet -- relative to its debt -- than competitors, and that it is undervalued relative to its expected growth. To me, that means it's time to scoop up some shares!

Get started today
There are two reasons I started this series. The first is because I'd like to establish a public record for how my stock picking is doing in a forum that will help hold me accountable. By announcing one stock a month that I'll be investing my Roth IRA money in, I gain that accountability.

But the second reason is that I think Roth IRAs are underutilized by many of today's newer entrants to the workforce. Though things like building up an emergency fund and paying off high-interest debt need to come first, contributing regularly to a Roth is one of the most important steps you can take in your investing life.

I hope that my public nods to Roth IRAs will encourage others to take advantage of their own accounts.

Big energy plays
If you think, like I do, that investing in energy is a safe and profitable decision for your portfolio, then I invite you to get a free copy of The Motley Fool's special free report: "3 Stocks for $100 Oil." Inside, you'll get a comprehensive report on three stocks that are poised to profit from the rising price of oil. The report is yours today, absolutely free!

Fool contributor Brian Stoffel owns shares of Whole Foods and National Oilwell Varco. He will be purchasing additional shares of National Oilwell for his Roth IRA once the Fool's trading rules allow. You can follow him on Twitter at @TMFStoffel.

The Motley Fool owns shares of National Oilwell Varco, Transocean, Whole Foods Market, Schlumberger, and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Westport Innovations, Wal-Mart Stores, Whole Foods Market, National Oilwell Varco, and Chesapeake Energy, and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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