We get it, oil prices are down more than 50% over the past seven months, which scares the bejesus out of investors who have any exposure to energy stocks. However, this doesn't mean you should be selling out of the energy sector. In fact, buying opportunities are all over the place.
So we asked three of our energy analysts to tell us which companies they have bought recently, and why they bought them. This is what they said.
Tyler Crowe: I also added to my position in Core Labs within the past couple of weeks, but Matt already covered that one, so instead let's look at the other position I added to: National Oilwell Varco (NOV -1.89%).
There are a few similarities between Core and National Oilwell Varco, and one of those traits that is nearest and dearest to my heart is that they are both superior generators of free cash flow. Since 2006, Varco has maintained an unlevered free cash flow margin greater than 10%, meaning it generates more than a dime of free cash flow for every dollar of sales. This gives the company immense financial flexibility to make loads of acquisitions -- as it has over the years -- and increase its market share in the manufacture of drilling equipment. At last count, Varco had more than 60% market share in the sales of offshore drilling equipment.
Shares have been taking a beating because oil prices are down and there is an oversupply of drilling rigs out there today. When this happens many equipment owners try to milk older equipment for all they can, meaning fewer orders for National Oilwell Varco. However, the company has more than $12 billion in orders to complete, so there is plenty to keep it busy until the market heads back up. After all, a company can only run older equipment for so long before it becomes too worn out to be useful.
I have no idea how long it's going to take for this recovery to happen, and personally I'm not worried about it with National Oilwell Varco or Core Labs. It will happen eventually, and when it does both companies are very well suited to take advantage of the recovery. That's why I'm loading up on shares now.