Everybody is panicking. Oil is down a little bit from the recent $50 highs; some 5% so far this month. Oh my goodness! Run for the exits. This pullback, or consolidation, is completely healthy. Normal. And should be expected. Take advantage of it and pick up a few shares of National Oilwell Varco (NOV).
I first highlighted NOV on May 26. Citing the capital expenditure-driven portions of NOV's business effectively brought to zero, we are left with a franchise of after-market parts and consumable services that can enable NOV to earn around $2.25 per share next year.
Other cyclical companies, like Joy Global (JOY), are being cheered by value investors by appropriate cost-cutting in the equipment business and focusing on preserving after-market and replacement sales. Despite recently soft earnings (and expected) earnings results, the stock continues on the stronger side. Why? Joy Global has franchise value. So does NOV.
In a couple of years, NOV can earn $4 per share and trade well into the $40s. From here in the low $30s, when it was added to my Best Ideas list on Real Money Pro, it could make for an attractive return with potentially lower risk. Investors will look to NOV, a strong balance sheet and solid after-market, as a must-own cyclical franchise.
Not to mention, General Electric (GE) with plenty of capital since exiting all things related to money, is obviously on the lookout for appropriate add-ons to its industrial services and parts businesses. Jim Cramer thinks GE should buy NOV; and I don't disagree. (General Electric is part of TheStreet's Action Alerts PLUS portfolio.)
Plenty of optionality at National Oilwell Varco, and the one-year chart looks absolutely terrific.