Why Fund Managers Are Buying National Oilwell Varco

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: National Oilwell Varco (NYSE: NOV). Are institutions bullish or bearish when it comes to this provider of equipment for oil and gas explorers?

Foolish facts

Data current as of Dec. 9.

Fools love National Oilwell Varco both for its valuation and its market position. It's the 'ACE Hardware' of oilrigs, as one CAPS investor called the company recently.

"As a provider of advanced equipment [National Oilwell Varco] benefits from the two big growth areas in drilling: Not only in deep water, but also in the shale formations on land in the U.S. (and elsewhere) that can now be exploited thanks to new technology," wrote CAPS investor billehart in July. The stock has nearly doubled since.

But is it still cheap? Not really, but at just under 16 times expected earnings, the stock trades about in line with analysts' growth expectations. To me, that seems perfectly reasonable.

And it could prove to be cheap. Energy prices are on the rise once more. Oil recently got near $90 per barrel, and natural gas prices have recovered from 2009 lows. Should these rallies continue, explorers would have incentive to purchase new equipment from National Oilwell Varco.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Continued growth is what institutions appear to be looking for. Big Money buyers have mostly purchased shares in each of the past three years. Institutions took some profit in the first quarter of this year, but they've been buying since.

They've been rewarded. Shares of National Oilwell Varco traded under $34 a share on June 1. Yesterday, the stock closed at $63.99. Big Money investors who got in at these lows have nearly doubled their money. That they're not selling says something about their view of the company's longer-term prospects.

Competitor and peer checkup

Source: Capital IQ. Data current as of Dec. 9.

Among its peers, National Oilwell Varco has a mediocre ownership profile. Institutions already own close to 90% of the shares outstanding while insiders own less than one quarter of one percent. CEO Merrill Miller Jr. 0.14% stake represents more than half executives' share of the company.

A lack of insider ownership is never a deal-breaker for me as an investor. But when a stock is fairly or expensively valued, it helps to know that executives have as much to gain as I do from a rising stock price. I'll consider buying shares of National Oilwell Varco when insiders demonstrate that they, too, think it's a buy. They haven't yet.

Now it's your turn to weigh in. Do you like National Oilwell Varco at these levels? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

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