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.
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.
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.