Oil Stocks: There's Only One I Need to Own

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A balanced retirement portfolio should have a good chunk allocated to the energy sector. But with hundreds of natural gas and oil stocks to choose from, it can be difficult to sift through the bunch and determine who the winners and losers will be.

I've found a way to sidestep that task. There's only one stock I need to own to get exposure to energy: National Oilwell Varco (NYSE: NOV  ) . Two years ago, I tabbed the company for my retirement portfolio. As you can see, it has underperformed since then, but read on to see why it's one holding I don't lose any sleep over.

NOV Total Return Price Chart

NOV Total Return Price data by YCharts.

The nuts and bolts of energy
During the Gold Rush of the 1840s and '50s, millions of prospectors moved west in the hopes of striking it rich. In the end, very few would actually make any real profit -- there just wasn't enough gold to go around. In many ways, that's how I view today's natural gas and oil stocks, especially the smaller plays.

One group that did make a killing, however, was one that sold products prospectors needed: picks, axes, and jeans. Levi Strauss' blue jeans were a direct result of the California Gold Rush. Today, National Oilwell Varco is to the energy industry what Strauss was to the gold prospectors: It's not after oil or natural gas; the company is just there to serve the needs of those that are.

Through a wave of mergers and acquisitions, NOV has become so ubiquitous that it's often referred to as "No Other Vendor." Morningstar noted that National Oilwell Varco has a 60% market share in oil rig equipment alone, and 90% of all rigs had at least some of its equipment on board.

Source: Arne Hückelheim, via Wikimedia Commons. 

Three megatrends to push it forward
National Oilwell Varco is situated to benefit from three major trends. First is the growing demand, and scarcity of, oil. Though the price for a barrel of oil currently hovers near $100, it won't likely stay there forever. Changing global demographics, especially growing consumption in developing economies, will have a marked impact.

But some contend that alternative fuels, especially natural gas, will help keep oil prices low. That's where the company's second strength comes into play. Its land rigs are just as capable at extracting natural gas as they are oil.

Finally, environmental concerns will likely play a larger role in government regulation in the wake of the BP oil spill and concerns about fracking. This plays right into National Oilwell Varco's wheelhouse, as it provides the parts necessary to help energy extractors meet heightened regulations.

Promising prospects on the horizon
Though National Oilwell Varco didn't necessarily hit its latest earnings out of the park, there's a lot to be excited about. As fellow Fool Matt DiLallo noted from the company's conference call, "[B]usiness typically lags that of both services providers and drilling contractors by a quarter or two."  

What does that mean? Well, that depends on what service providers and drilling contractors are reporting. Halliburton, which focuses on drilling, recorded a record for first-quarter revenue with $7 billion in sales. Meanwhile Core Labs, which is more of a service provider, earned record profits in the beginning of 2013.

Both of those are great signs for National Oilwell Varco, but perhaps the most promising is the company's record backlog order of $12.9 billion, up 24% from a year ago. Though this isn't actually money the company has collected, it's a hypothetical window into future revenue flows.

What's a Fool to do?
Sure, you can go looking for the oil stocks that will beat out the others -- or you could rest easy knowing National Oilwell Varco will be there no matter who finds the black gold.

Right now, with a P/E of just 12 and investors uniformly bearish on North American demand, I think the stock is a solid buy. Today, it represents 6.5% of my real-life holdings, and it will be staying in my retirement portfolio indefinitely.

To help determine if it could be a good fit for your portfolio, you're invited to check out The Motley Fool's premium research report featuring in-depth analysis on whether National Oilwell Varco is a buy today. For instant access to this valuable investor's resource, simply click here now to claim your copy.

Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 18, 2013, at 8:34 PM, cowdog98 wrote:

    That is the dumbest %^&^% article I have read. SPY up 32% and NOV -16% and NOV is a good investment? Good luck in your retirement-Big O will take care of morons like you,KOLA

  • Report this Comment On May 18, 2013, at 9:42 PM, Realityhuh wrote:

    I use or have used several NOV products and services for years. You can put your money on this....every line of business has become worse with time. I've seen them buy out and completely ruin everything from drill bits and down hole motors to inspection services and tools. It's a good thing they have their parts and supplies chain to keep them going....

  • Report this Comment On May 19, 2013, at 10:52 PM, kachie wrote:

    NOV has made me thousands of $ the last few months by buying the dips and selling the highs. Every time ZACKS downgrades it, it goes down and bounces up the next day. I live within miles

    of 4 of their facilities in Texas and business is

    booming and they are hiring like crazy. Would I

    hold it forever? Not a chance because when the

    major correction comes, they'll all get hit and it

    is not a matter of if, it's when.

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9/29/2016 11:13 AM
NOV $37.94 Up +1.67 +4.60%
National Oilwell V… CAPS Rating: *****