Recent Buy

buyBoy, I’m getting the month started off a little earlier than I anticipated. As previously aforementioned, my capital availability for stock purchases is going to be light this year, especially for the first few months. But there’s no challenge I’m not willing to take on!

Anyway, I wasn’t planning on purchasing any stocks for the first week or so. I had a couple of names in mind and I was doing some research when oil took another beating on Monday, dropping below $50 per barrel for the first time in five years. If being greedy when others are fearful is the name of the game, consider me a player.

That said, I’m not particularly enthusiastic about going crazy on energy stocks due to my allocation to that sector, which is already north of 15%. Furthermore, my cost basis in a number of really great stocks is already attractive. However, one stock in particular is trading well below my cost basis and the opportunity to average down became apparently too strong to ignore.

I purchased 20 shares of National Oilwell Varco, Inc. (NOV) on 1/5/15 for $61.91 per share.

Overview

With corporate history dating back to 1862, National Oilwell Varco is a leading worldwide provider of equipment and components used in oil and gas drilling and production, oilfield services, and supply chain integration services to the upstream industry.

The company conducts operations in over 1,200 locations across six continents. Approximately 65% of their fiscal year 2013 revenue was derived from operations outside the US.

They have recently operated in three segments, although these segments will be renamed for fiscal year 2014 and beyond after the spin-off of NOW Inc. (DNOW) was completed earlier this year. The segments up until FY 2013 were as such: Rig Technology (51% of FY 2013 revenue); Petroleum Services & Supplies (31%); and Distribution & Transmission (22%). Moving forward, the new segments will be: Rig Systems, Rig Aftermarket, Wellbore Technologies, and Completion & Production Solutions.

NOV provides all the heavy equipment necessary for oil and gas drilling, including rigs, derricks, rotarys, blowout preventers, mud pumps, wireline winches, cranes, drill pipes, drilling motors, drill bits, and transfer pumps, among many other products. They are apparently a one-stop shop for their clients.

Conviction

I initiated my position in NOV back in early November at $71.05 per share. I obviously regret the timing, but not the logic. The drop in oil has probably been a bit swifter and more substantial than some might have expected, but it really changes very little from my point of view.

The recent drop in oil and subsequently NOV’s stock has given me an opportunity to average down in a big way. I usually start to get interested in averaging down around the 5% level, and that’s because I always attempt to buy stocks with a large margin of safety at the outset. But give me a chance to buy in at a level 10% cheaper and it’s tough for me to pass it up.

I often write about conviction, which is basically being confident with your analysis. If a stock touts excellent fundamentals, great qualitative aspects, solid growth opportunities, and an attractive valuation, then a cheaper price should be welcome and appreciated. Now, that’s assuming the fundamentals are still in place, which is sometimes difficult to decipher because we’re oftentimes trying to anticipate events that have not yet come to pass. But price and value are not one and the same, so a substantial drop in price is often just a chance to buy a stock when the gap between the two is more advantageous to the long-term investor.

So what’s changed with NOV since I purchased it? Nothing, other than the fact that oil has dropped so significantly. This drop could very well have a material impact on National Oilwell’s business, however. So their earnings over the next fiscal year or two could be negatively impacted in a big way, but it’s really difficult to say. It really depends on how protracted this drop in oil is and how much some of the bigger players in this industry cut back on capital expenditures.

But there are some enduring tailwinds for NOV, regardless of the current climate in energy:

  • They have a massive backlog of $16.43 billion (as of Q3), which should keep them busy even if new order inflows are reduced.
  • A considerable portion of the company’s revenue (over 50%) is derived from wells that are already in operation.
  • The company recently announced a massive $3 billion share repurchase plan, which is more than 10% of the market cap. This buyback is even more effective with the shares so depressed right now, which is really wonderful for both the company and long-term investors.
  • They have an excellent balance sheet, with a long-term debt equity ratio of just 0.14 and an interest coverage ratio north of 30. Furthermore, they have more than $4 billion in cash and cash equivalents on the balance sheet, which covers about five years of dividend payments at the current level. I see the dividend as extremely well-covered here, especially in light of the low payout ratio of just 31.5%.

Risks

I went over some of the risks in the last article on NOV. I viewed the largest risk as a protracted downturn in oil prices, which is possibly materializing. In addition, there’s a black swan risk, like a failure of one or more of their components, which could lead to litigation and damage to their reputation. One other risk I didn’t go over last time is acquisition risk. National Oilwell Varco has grown substantially through acquisitions, and there’s not only the possibility that attractive acquisitions could dry up, but also the risk that future acquisitions might not be integrated as successfully. The company could also overpay for acquisitions, though they seem to have a pretty solid track record in this arena.

Valuation

The stock is on the market for a P/E ratio of 10.68, which is substantially lower than the broader S&P 500. In addition, it’s at a sizable discount to NOV’s own five-year average P/E ratio of 13.7. This discount perhaps makes some sense in the short term due to lower oil prices, though I think the tailwinds buffer a lot of their potential setbacks over the long term. Furthermore, one should consider that this stock is down 25% over the last six months. So I guess I have to ask myself if the company was temporarily impaired to the point to where it’s permanently worth some $8 billion less? My answer is no.

I valued shares using a dividend discount model analysis with a 10% discount rate and an 8% long-term growth rate. This growth rate is less than 1/3 of National Oilwell’s earnings growth rate over the last decade. Meanwhile their dividend growth rate is 30.4% over the last five years. Factoring in continued growth, a low payout ratio, and a healthy balance sheet, and I think the projected long-term growth rate is appropriate, though at the higher end of what I usually use. The DDM analysis gives me a fair value on shares of $99.36.

Conclusion

National Oilwell Varco is a dominant player in the oilfield services space. With a diverse product lineup, a sizable backlog, a large buyback plan, and exposure to almost every element of drilling for oil and gas, I think the company is well-positioned to excel through almost any economic environment in energy. Even if they grow at a slower rate in the future, shares appear to be substantially discounted here.

The payout ratio is very low, to the point to where earnings could temporarily halve and the dividend could continue growing at a robust rate. Factor in plenty of cash on hand and what will surely be less shares outstanding, and I think the dividend will continue growing for the foreseeable future.

I’m going to include a couple of other valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates NOV as a 4/5 star value, with a fair value estimate of $84.00.

S&P Capital IQ rates NOV as a 3/5 star hold, with a fair value calculation of $82.10.

This purchase adds $36.80 to my annual dividend income, based on the current quarterly $0.46 dividend.

I’ll update my Freedom Fund in early February to reflect this recent purchase.

Full Disclosure: Long NOV.

What do you think of NOV here? Have you ever taken a look? Think it’s attractively valued? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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126 Comments

  1. DM,

    Nice way to get the year started! I obviously am 100% on board with investing in the energy sector right now. While I don’t own any NOV, I will continue to build my energy positions while oil prices are low.

    I look forward to your future ideas and purchases.

    MDP

  2. Nice purchase….any guess about what the future dividend growth will look like? Obviously its been robust the last two years, but before that the raises were much smaller….just seems to be a bit sporadic and difficult to predict….

  3. DM, I have owned a small position in NOV for about a year. I have been wanting to add to my position also but decided to purchase HP, BP, RDS, CVX instead. Eventually I will work NOV into my lineup again.

    Regards,
    Mr.StockFox

  4. I have a few energy related stocks on my watch list including NOV. I’ve been watching this sector very closely over the last few months. So much so you may even see an investment related post soon! That would be first in a very long time. 🙂

  5. nov is good in that its parts are an integral and hard to replace parts in the mechanics behind the oil industry, however the share buybacks and dividends are impacted if the orderbook gets withdrawn. this is from our experience in dealing with ship building and rig building industry. it depends on the terms of how they actually sign.

    a more conservative MOS is perhaps not to look at the low PE (since the E might not be coming back in the next 3 years, and based on time value of money, those 3 years are important cash flow) but to based the PE on a conservative E, perhaps on a few low oil prices years.

  6. Thanks for the sharing. I learned a lot from your blog.

    I just started to build my portfolio, so my current main focus is on energy sector. I believe current market offers a good opportunity to accumulate shares of the energy stocks.

    Best of luck in 2015.

  7. Jason,

    I’d like to add that name to my portfolio… but I get paid in Canadian money and the exchange rate is crazy high right now so stocks aren’t that much of a bargain for me. I might focus more on Canadian stocks in january. I have to make an analysis of suncor.

    I guess I won’t buy anything before at least the third week of january anyway since my cash reserve is depleted… ahh Christmas… it costed me too much again this year. I need to be more frugal and especially get my girlfriend to become more frugal. She bought gifts to everyone and aksed me to pay half of the bill and told me that Christmas wasn’t a good time to be cheap… lol I would have preferred to buy oil stocks!

    By the way, I’ve coded a small beta dividend growth stocks screener as a week-end project over the last week-end. You might want to take a look at it and give me some suggestions. It’s on my blog.

    Cheers

  8. I have followed your blog for a while now and enjoy it. I understand your quest for financial independence. But, have you thought about doing it without fossil fuels? We’re running out of time to address the climate crisis, and we all need to do whatever we can to help.

  9. MDP,

    I’m not super crazy about energy in general, as I think more pain is still yet ahead if oil stays low for the next 6-12 months. But some of the oilfield services stocks (like NOV) have been hammered disproportionately to a lot of others in this sector, so I’m happy to average down. 🙂

    Gotta answer the door when opportunity knocks!

    Thanks for dropping by.

    Cheers.

  10. Tom,

    Well, even the smaller raises were more than 10%, so I don’t think there’s really much to dislike there. If 10% is the baseline, there’s a lot of upside there. But with less shares outstanding, plenty of cash on hand, and a low payout ratio, I expect robust dividend growth for the foreseeable future, even if oil remains low throughout 2015. The uncertainty might cause them to stay pretty conservative with the next raise, however. We’ll see, but I’m pretty optimistic about their long-term prospects. 🙂

    Best regards.

  11. Mr. Stock Fox,

    Glad to be a fellow shareholder! 🙂

    I have enough of most of the supermajors at this point, so I haven’t been super enthusiastic. But I’m lucky in that my cost basis is pretty low across the board there. XOM is one I’d like to add to at some point, however.

    Thanks for dropping by.

    Best wishes.

  12. Stoic,

    You’re right. That would be the first stock purchase in quite some time. Would be great to see you back in the game! 🙂

    Anxious to see how that works out for you. Happy shopping!

    Best regards.

  13. Kyith,

    Right, but the good news is that rig orders only account for about 44% of the business. A significant portion, but the larger part of the business focuses on aftermarket and wells already in operation.

    As far as the E goes, most analysts that cover the stock are still predicting solid growth over the next cycle, so I’m optimistic here. It obviously depends on how protracted things are, but slashing the market cap by over $8 billion over the last six months is ringing my value bell.

    Cheers!

  14. Tawcan,

    This will actually probably be one of the very few energy buys for me. I’m not real enthusiastic about averaging up on some of these stocks when oil has dropped so low. But if I get the chance to average down on the likes of CVX at, say $85 or so, I’d take it. We’ll see what we get. 🙂

    Happy shopping out there!

    Best regards.

  15. Allan,

    I hear you on cash depletion. I may not even get to buy stocks again until April. I anticipate owing a pretty hefty tax bill due to making so much online income last year and sending in a rather small tax receipt. But I’d rather have a tax problem than a revenue problem. 🙂

    I’ll see if I can check out the screener. Always nice to have another tool in the arsenal!

    Cheers.

  16. Chris,

    Well, I’m a fan of hedging my bets. I do have some exposure to greener energy via AVA and GE, for instance. But if alternative energy becomes more ubiquitous and profitable, my interest will increase. I’d be happy to invest in, say, a solar panel company that has five or more years of dividend increases on the back of consistently increasing profit, but there just aren’t any out there. I’m sure that’ll change over time, and my capital will be ready when it does.

    Take care.

  17. Jason,
    I’m heavy in oil stocks also, and long NOV. Great company, no doubt one we will grow to love more over the years. Funny that you mentioned the possibility that they may have to over pay for future acquisitions. I posit that they may be able to find some bargains now for the same reasons that we are. The other side of the coin, if you will.

    I am having a hard time not picking up shares of BP at $36 and COP at $63. If we only knew what the bottom in the oil market is and when it would happen. Guess I’ll just nibble for now.

    Happy hunting!
    KeithX

  18. Good purchase buying while the industry is down. I’m not heavily invested in the big oil majors yet so I think one of my next purchases might be COP/CVX. In either case, I think we will both be happy in the long term!

  19. KeithX,

    Great point there. With the fall across the board, there might be a bargain out there for NOV to acquire. The risk of overpaying was more of a long-term risk. When I write about stocks, values, fundamentals, and qualitative aspects, I always have the perspective of 20-30 years. So sometimes these thoughts may not necessarily correlate to right now, and that’s simply because I just don’t really think much about the here and now when buying stocks.

    I hear you there on BP. I’m okay with BP as a smaller position, however. But it does appear to be one of the more appealing values, if you’re okay with the elevated risk. I haven’t really come across much literature from the company discussing low oil prices. The last I read on it, Dudley was talking about the company being okay with paying the dividend and any litigation fines with oil around ~$100. Not sure how that works out for them with oil around $50.

    Happy hunting for you as well! 🙂

    Best wishes.

  20. ADD,

    Sounds like a good move there. If I wasn’t as heavily invested in energy I might be a bit more enthusiastic. But my cost basis in CVX, for instance, is somewhere near $100. So I’d like to average down, but we’re just not there yet. Just be aware that further volatility is most likely still yet ahead, especially when earnings start coming out. But a long-term investor won’t really mind much. Just more opportunities.

    Best of luck out there! 🙂

    Cheers.

  21. Energy is getting hammered! Saw an article today on BP and someone was predicting dividend cuts due to low profit margins for a long period of time. Are any of these companies at risk to lower dividends you think?

  22. MU,

    Thanks for dropping in. Glad you’ve found some value in the content! 🙂

    Happy shopping. Always fun to put capital to work in high-quality stocks. Life is good, especially if the market continues this pattern throughout the year.

    Best regards.

  23. DM,
    I have not looked at this company yet. Funny though, I recently saw a building of theirs the other day driving across town. Just looked at some key stats and the balance sheet, PE, and payout ratio all stand out right away as you mention.

    Most of us have bought some energy companies a little too early these past few months. Timing is tough in a down market. At some point, we have to step in and buy. Over a long period of time, that higher purchase in November will be forgotten. I bought some Helmerich & Payne (HP) similarly on the way down.

    Way to kick off the new year!

    -RBD

  24. Scubatoad,

    I don’t think it’s outside the realm of possibility for BP at all. They don’t have a lengthy history of dividend increases like some of the domestic supermajors anyhow. So they don’t have the type of consistency to where a cut would really be shocking, like it would be with a company like Exxon Mobil. I was just mentioning above that I don’t know how $50 oil works out for BP. The last literature I came across was Dudley mentioning how the company would be fine paying any Deepwater Horizon fines and the dividend with oil at $100. Oil is half that now, so I’m just not sure. Looks like they have a few years of dividend payments in cash on the balance sheet, but Russia’s issues and the continuation of litigation weigh on them. In addition, their FCF over the last couple of years has been anything but solid. Contrasting their cash flow with National Oilwell Varco and it’s night and day.

    Hope that helps!

    Take care.

  25. IP,

    I hear you there. I don’t think I’d want to go real crazy here with some of these stocks. Like anything else, you have to pick and choose your opportunities. NOV, along with other stocks in the oilfield services area, has been disproportionately hammered in comparison to a lot of other choices. I thought it was a good value at $70. Near $60, it seems to be extremely cheap to me. But you’re absolutely right that continued volatility is likely on the horizon. Something to be mindful of, though that doesn’t really bother me as a long-term investor. 🙂

    Thanks for sharing your thoughts!

    Cheers.

  26. RBD,

    Thanks for adding that.

    I agree. The fundamentals are outstanding. Hard to say how all of this will affect them, but even looking at earnings in 2009 (when the company was much smaller) and the dividend is well-covered. Ultimately, volatility is just an opportunity for me. This would be unfortunate if I were a stock trader or someone who lived off of selling stocks, but thankfully I’m neither. 🙂

    HP is a solid driller. If I were to ever buy a driller, it’d be HP.

    Best wishes!

  27. Hi Jason, great buy! Real quick, whats your thought on CAT? I’ve been wanting to invest on CAT but the yield on energy sectors makes it irresistible for me. I think I need to diverse my attention on other sector. Another stock I like is PM.
    FFF

  28. Well, that’s one way to start off 2015 in the right direction!

    I was in a similar situation when I first picked up some WAG in what ended up being a very ill-timed purchase. Bought at $75 right before it plunged down to the low $60s and stayed there for quite some time, which is when I decided to average down at $60. Patiently waited for it to go back up, and it has since then (WBA closed just under $75 today). Best part is I’ve been collecting dividends along the way all this time, so now I’ve got some *really* nice gains to go along with the dividends.

    I remember being so upset about my initial WAG purchase. Less than a year later, I’ve nearly forgotten about it and was only reminded of it when I read this article.

    …and all of this is just a very long-winded way of saying, your first purchase of NOV will very quickly become a distant memory. 🙂

  29. FFF,

    I think CAT is a fine company. Increasing competition from Asia is something to be mindful of over the long haul. And it’s a capital-intensive and cyclical business. I already have Deere, which is a similar company, but CAT is a fine way to go as well.

    PM is one of my top ideas for 2015. If I didn’t already own 115 shares (which is probably about as much as I’ll ever go), I’d buy some here.

    Thanks for stopping by. Have fun shopping. 🙂

    Best regards!

  30. Jason:

    Over the long haul, I suspect you will be happy with your purchases. Nothing like averaging down with a good dividend company. True, NOV might slow their DG a little for a while but the same can be said for even the big players in this sector.

    I don’t own NOV. It does look pretty undervalued and I’m still watching. I am also looking to average down with the likes of XOM and CVX (and somewhat with COP). I’m pretty heavy with these three right now so I’ll be waiting for a current yield that is well above the norm. If I don’t get to add because the prices go back up, I’m still good.

    I’m having a hard time visualizing a dividend cut for these supermajors, but perhaps a slight slowdown in dividend growth is possible. I’m watching for a current yield on XOM of 4%, CVX 4.5% and COP 5.5%. As scary as oil is right now, it seems to be one of the few places to find potential bargains.

    Happy investing!

    Steve

  31. Nice work Jason, I really like this purchase for you. That amazingly attractive fast graph I posted when you bought this company looks so much better at today’s prices. I’ve been itching to start a position in this one after you introduced me to it and might have to join you. Keep at it!

    Best,
    Ryan

  32. DM,

    Great purchase. I like how you have taken the downturn to re-up in a position that you recently invested in. Smart time to lower your cost basis, especially as an investor with a long-term mindset. We had a similar idea with our recent investments. Same industry, different company as I chose to invest in SLB. Either way, I don’t think you could go wrong picking between the two companies. Both are great market, leaders in an industry dominated by a few major players. The moats are large due to the high switching costs and the niche specialization required to succeed in the industry.

    Keep up the great work and keep the snowball moving!

    Bert

  33. Hi Jason,

    Thank you for sharing your information about your recent purchase of NOV. I have been following your posts for the last several months and they are very insightful (especially for people like me who are not as experienced investing in dividend stocks).

    I’m curious if you could share a little more information on how you value companies. I’ve noticed in this post (and previous posts) you mention using the dividend discount model analysis. Is there any good source of information on how to use this type of analysis to value the companies you buy ?

    Thank you!
    -Todd

  34. Wow, assuming 8% long-term growth is pretty aggressive. How did you come up with that figure?

    I think you might still be early on this one. I’ve been watching oil as well, and I’m waiting for Something Bad to happen. A lot of bad has been priced-in already, but I’m expecting to see some cancellations hitting backlogs in OFS, offshore driller day rates coming down, and some fringe shale drillers to go bust. Then I’ll be adding more. I don’t expect to buy at the bottom, but Something Bad will signal that we’re closer than we are now.

  35. Steve,

    Absolutely. If you like a stock at $70, then you should certainly love it at $60. 🙂

    I’m also pretty heavy with some of the oil majors, so I’ve had to branch out a bit. And I think, just looking at performance, the oilfield services stocks have been disproportionately hammered during this recent drop. But if we get some serious volatility with some of the bigger players I’d be happy to revisit some of those names. But, like you, I feel comfortable either way. If they don’t go down, my holdings are right where I like them. If they go down quite a bit, I’d be happy to consider adding. A win-win!

    Thanks for dropping by. Hope all is well with retirement over there.

    Cheers.

  36. Seraph,

    Ha. This might be my last stock purchase for a month or two. I expect to have a pretty hefty tax bill, but it’s nice to get the year started off with a solid buy. 🙂

    That’s good stuff there with WAG. I think a lot of it just comes down to perspective and time horizon. If you’re a long-term investor, then a much lower price is just an opportunity to buy more. Someone with a more short-term view on things would be pretty bummed out, however. But quality is enduring. And eventually these companies will be worth more because they’re making more money. It’s just an inevitability for the most part. Knowing that going in makes things a lot easier. Plus, you’re getting paid in the meanwhile. Not too shabby!

    Thanks for sharing that.

    Best regards!

  37. Ryan,

    Ahh, yes! I remember that now. The graph must be off the charts now. 🙂

    The fundamentals are about as solid as it gets in energy. It’s really no comparison to some of the supermajors where the growth is a lot slower and the values are, in my opinion, not as strong. But the supermajors have the upper hand as they control a lot of the spending. However, I think NOV still has some solid tailwinds in their direction. We’ll see how it goes over the next few years.

    Thanks for stopping by!

    Best regards.

  38. Bert,

    Definitely. A long-term investor should relish an opportunity to buy more equity in a company at a much lower price. Now, that’s assuming fundamentals are relatively unchanged, the capital is available, and there’s room in the portfolio. Luckily, I checked all of these boxes here. 🙂

    Great job with SLB over there. I think that’s another high-quality company in this space. It’ll be interesting to see how the HAL moves impact them.

    Keep up the great work yourself!

    Best wishes.

  39. Chris,

    I don’t believe 8% is aggressive. Most of the companies I follow tend to grow around that level over long periods of time. It’s about 1/3 the rate at which NOV has grown over the last decade. And they’re still a fairly small company. But a 7% growth rate still means the stock is attractively valued here. Or you could use Morningstar or S&P Capital IQ, both of which indicate that the stock is potentially 20%+ undervalued.

    You could very well be right there about being early, but it’s not really a concern for me. I’m not trying to time NOV or oil. I only attempt to analyze and value stocks with all known information and buy when the price is well below intrinsic value. I’m looking at National Oilwell Varco with a time frame of decades in mind, and I believe they’ll still be a dominant player years from now. As such, they should continue to profit handsomely. As far as orders go, it’s tough to say how that will go. But it only impacts less than half the business. It’s not like the wells already in operation are just going to stop. The world still runs on oil and gas.

    Take care!

  40. Hi Jason,

    I saw that you bought NOV sometime back and now, however, I’ve not taken a closer look at it, reason being, I’m still buying wonderful gems like CVX, COP, RDS.B, BP and XOM at fair prices. These supermajors have started to sport a hair cut of 20-30% and at fair enough price to buy. Also, I’m considering small positions in other O&E companies like RIG, SDRL and few others like OKE, HP, and LINE, however, I think there could be further slide coming and some companies may even go down a lot.

    Best,
    PIM

  41. PIM,

    Nice moves there. I think some of the oil majors have some value, though many of them are trading at a price much higher than I paid for them. The lone exception being BP, but I think the risks probably warrant some of the undervaluation here. I’m kind of anxious to see how these stocks perform after a few quarters of earnings with lower oil prices. Could be interesting.

    I wish you the best of luck with stocks like RIG, SDRL, and LINE. I try to stick with high-quality companies, and to me those are probably the complete opposite. Not to say you can’t make money with plays like that, and SDRL has certainly taken a beating. But I took a pass on SDRL due to poor fundamentals even before it eliminated the dividend. Now that it’s not paying anything at all it definitely doesn’t qualify for me. I wouldn’t be surprised to see RIG cut/eliminate its dividend pretty soon as well. I was actually a RIG shareholder once upon a time. I bought shares in the summer of 2010 after the incident in the Gulf. I was still kind of learning the ropes back then. Luckily, I bought at somewhere around $50 and sold around $80. The timing was all luck, but I’m sure glad I sold out of that thing. It started an almost nonstop decline ever since. Yikes.

    Cheers!

  42. I have been hesitant about the energy sector for a while now. Part of me thinks I should jump in while it’s taking a beating, another part tells me that the beating will continue for another 6 months so might as well wait another 3 or 4 before I join the crowd. And another part tells me that oil companies don’t look as bright as they did 10 years ago. Hybrids are everywhere, electric cars are starting to make their push, renewable energy is starting to become more mainstream…

    There’s no way oil will be put on a back burner to these alternatives, but it just doesn’t seem like it will be burning as hot as it used to be.

    But while I debate the energy sector for a while, I did initiate a position in PM since it has been down as of late. Smoking’s not going anywhere.

  43. Zee,

    Nice buy there with PM. That’s one of my top ideas for 2015. I’ve had a couple of people now ask me about my top stock pick for this year. I keep coming around to PM. I’d buy more, but 115 shares is probably all I’ll ever need.

    I hear you there on energy, but I think some of that is just hype. I live in Florida where the sunshine is about as abundant as it gets. I’ve never once come across a house down here that runs on solar. I’m sure they’re out there. But they’re not as commonplace as some would have you believe. And those hybrids/electric cars still need to plug in for the juice. That’s where gas comes in. Keep in mind as well that we’re in the US in 2014, yet we still mostly run on oil/gas/coal. Imagine what it’s like in India or China or the Philippines.

    I am actually quite pleased with the way alternative energy is coming around. You used to hear about peak oil here and there, but very little these days. I always felt that technology would save the day, and it seems it will. Just about the time that oil becomes too expensive/rare to feasibly use, I think alternative energy will be more commonplace/cheap/accessible. But we’ll see. It’s interesting that cheaper oil actually creates more demand and less enthusiasm for alternative energy. Funny how that works out.

    I do see Big Oil as more of a 10-20 year play, rather than a “rest of my life” play, which is why I’m not all that enthusiastic to go much over 15% in energy. I don’t think these companies are going anywhere anytime soon, but I also wouldn’t be shocked to see alternative energy taking over in a decade or two. I’d be happy to hedge my bets with some alternative/renewable energy companies, but there just aren’t any big players out there with lengthy dividend growth streaks. Meanwhile, I do have some minor exposure there via GE and AVA.

    Best regards!

  44. I know that a lot of larger businesses use solar. It’s a way for them to reduce their costs and use up that empty roof space. I even think that about a third of the busses in San Francisco are fully electric instead of using gas. My home owners association here decided to install solar about 3 years ago now. For a 12 building place with 299 units we get somewhere around 60% of our power from it now which is a huge reduction for us.

    But I think on the individual owner basis, it’s probably not the most cost efficient yet, but on a larger scale it probably is more worth while. I sort of do think that it will take a few decades as well before any major shift starts happening. Maybe I just think we are further along than we really are because living in the bay area I do know a lot of people with electric cars. I even know one person that is completely off the grid with a fully solar house, but I know he’s an extremist so I usually don’t count him 🙂

    I still think that for me I’ll wait at least a few months before diving in on the oil companies.

  45. Thanks for sharing your recent buy with us. I was surprised at how quickly this buy came in. I know that we all must watch our funds as holiday time passed and tax season follows. I’m still watching several stocks but have not made a buy yet. Perhaps next week. Like you, I may be averaging down instead of averaging up with some of my January stock considerations. Given the chance to buy at a sale price I usually take it.

  46. Hi Jason

    First of all, thanks for a great blog. You truly are a great inspiration for many of us Finns!

    What is your opinion on Helmerich & Payne? Growing dividend, almost no debt and low dividend payout ratio surely means HP is a great investment?

    Best regards,

    Sam

  47. Nice solid buy DM – What’s the beauty your current position, even though you’re not contributing capital over the next couple of months? Your portfolio will be doing to contributing for you, likely enough to get close to another small buy. Talk about a great place to be in!

  48. Solid purchase Jason. I ended up going back to the energy sector again this month too, even though I was really considering going with either GE or CAT. Instead, I went for a company with a decent moat and a great yield in ESV. Part of this decision is to fill a yield gap in my portfolio left by ARCP, but by looking at the fundamentals of ESV compared to the rest of its market segment, I think it will weather the low oil prices better than most of its competitiors. If the prices do stay low for longer, then some of them may go out of business, allowing ESV a larger market share.

  49. Solid buy, DM. I’ve been following NOV for several years thanks to Motley Fool. Can’t remember the last time the yield was hovering near the 3% mark. Recently pulled the trigger myself with some funds I had in my taxable accounts after some late December tax-loss harvesting. Great starting yield and price for a company with the nickname “No Other Vendor”. Now THAT’S a defensive moat!!!

  50. Sounds like a great buy! I purchased COP. I’m super excited on my new dividend journey and being frugal. You’re a great inspiration! Thanks for the great blog!

  51. DivHut,

    Yeah, this came a bit quicker than I had planned on, but that might be it for me for a bit. Not sure if I’ll be able to buy any stocks in Feb or Mar. Definitely not any more this month. But I’ve had the pedal to the metal for the last five years, so I’m okay taking a breather for a month or two. Not sure how much I’m going to owe in taxes after a blockbuster year for online income, so I do need to shore up the cash.

    Wish you much luck finding that right stock on sale. Nothing like buying a high-quality dividend growth stock for less than it’s worth. 🙂

    Cheers!

  52. Sam,

    Thank you very much. Appreciate the support and readership from Finland! 🙂

    I like HP, but I’m not a huge fan of drillers in general. The industry is heavily fragmented and the economics don’t seem to be all that great. That said, if I were to ever buy a driller, it’d be HP. The only thing that might concern me about HP is that even though they have a very lengthy dividend growth record, you can see that it’s only in the last few years that they started paying out a sizable portion of earnings. So I’m not sure how management might respond to a severe drop in earnings. The other concern I might have is that the dividend exceeded FCF for FY 2013. And they don’t have multiple years of payouts in cash on hand like NOV. I personally prefer NOV to HP for a number of reasons, but HP is a great driller. Just not sure I’d ever really want to get into the drilling side.

    Best regards!

  53. Dan,

    Good stuff. Always nice to get the first one under the belt and get the snowball moving for the year. I imagine you’ll be happy with CAT over the next 10-20 years and beyond. 🙂

    Thanks for sharing!

    Take care.

  54. W2R,

    Exactly. That’s the whole point behind getting things moving as much as possible as quick as possible. That’s why I prefer cash flow to cash. Get your cash flow moving and you don’t need to worry about cash any more. I’d much rather have cash that regenerates itself than a pile of cash that does nothing. So while I need to shore up some cash for taxes over the next couple of months, cash flow will be coming in all by itself. It’s wonderful. 🙂

    You’re there as well. It’s a great spot. I imagine our positions will be even better a couple of years from now!

    Thanks for dropping by.

    Best regards.

  55. IrishBrian,

    I wish you much luck there with ESV. I personally can’t wrap my brain around some of the fundamentals. How they go from $257 million in long-term debt to over $4 billion in just five years…that’s light speed stuff. And of course cash has gone from a solid position to almost nothing. Meanwhile, free cash flow cannot cover the dividend, which means they need to fund it with either cash on hand, debt, or equity. And that was with high oil prices. I fear for their position moving forward. I’d be careful.

    Cheers!

  56. GordonsGecko,

    Seems like a very solid company. And I love the nickname. I remember coming across that when doing research on the company the first time around back in teh fall. You basically cannot drill for oil or gas without coming into contact with them.

    The fundamentals appear to be among the best I can find in the O&G space, which should serve them well if things get rough for a protracted period. Solid backlog, great cash flow, superb balance sheet. Not much to really dislike here. 🙂

    Glad to be a fellow shareholder!

    Best regards.

  57. SOS,

    Exciting stuff to make your first stock purchase! I can tell you that the enthusiasm never wears off, at least not for me. I still get a rush every time I hit the buy button and see a stock added to the portfolio. 🙂

    Best of luck as you traverse down your own path. The rewards are there for those willing to put in the hard work. Stick with it!

    Cheers.

  58. Great buy! I actually picked up 20 shares of NOV myself on the same day, but about a buck higher. I think if they do pick up any acquisitions, with their balance sheet and the current oil market environment, they have a good chance to get great value.

    A big regret of mine was how little I invested in ’08/09 when the whole world was on sale. Value was everywhere but I let myself be dissuaded by the experts screaming that the sky was falling, and my attempt to time the market caused me to miss out big. By the end of this year I’ll probably be very overweight in energy but hopefully by the time it recovers there will be a bear market elsewhere for me to try and balance it out with future funds.

    What do you think about the refiners? I really like PSX around here and VLO’s a distant but attractive 2nd. It seems like their margins should hold up much better than the E&P’s and their cash flows look much stronger.

  59. Nice buy, Jason!

    I’ve yet to purchase NOV but it’s on my research list. Interesting on the surface at the very least. I’ve got a big chunk of XOM but I may take a small bite of 1-2 companies within the oil sector.

    I bought my first shares of BHP Billiton today. It’s also near multi-year lows so I’ve got a pretty good feeling about it as well.

    Take care!

    Br

    Jarmo

  60. DM,

    Nice add too your NOV position. I too added Monday, I think it’s a bargain. Also added OKE, also in the bargain bin. Just waiting for funds to settle and i’ll be back in buying those names. Quality purchases at lower prices, with consistent dividend payouts that will go up! what’s not to like there…

    Good luck,
    j-harr

  61. Hallo Jason,

    I really appreciate your second move towards NOV. I plan to double my stack in this company within the first half year. I love the facts regarding this company and the management has a great chance to buy back shares at depressed prices. Let’s see if they finally take the chance and pull the trigger.

    I can not fully understand your concern regarding an exposure of over 15% to the oil industry. I do totally agree, that say in 8 or 10 years, when you are living from your dividends you do want to have a well diversified income stream from multiple companies and industry sectors, but now you are still in your accumlating phase and you can rebalance your portfolio with purchases in other sectors later on, for instance when consumer staples are cheap again in maybe a couple of years. My plan is rather to accumulate now my share in the oil companies I like (NOV, XOM) and then use the income from those investment and put them to use in the next sector that is down due to whatever concerns you can think of.

    One question regarding your regular purchases: The amount you spent on fees is that already considered in the prices you mention in your articles or has that to be added? I’m curious what a typical order fee is in the US. At my current broker I pay at least 10 Euros (~ 12 Dollars) for a small order and an order in the range of 10000 Euros (~12000 Dollars) costs approximately 30 Euros + something (~ 40 Dollars).

    Best regards,
    Ralf

  62. If being greedy when others are fearful is the name of the game, consider me a player.

    Don’t hate the player hate the game ha! Nothing better than being able to average down on a purchase that your previous valuation already determined to be attractive.

    Great buy, and best of luck throughout 2015 Jason!

    Mr. Captain Cash

  63. soggy,

    I wish I would have even been investing back in 2008 or 2009. It’s unfortunate I didn’t even get started until 2010 was well underway. Stocks were certainly cheaper then than they are now, but some of the steals had already disappeared to a degree.

    PSX has been kind to me. The refiners seem like solid long-term bets, though their results can be extremely volatile. I generally prefer to invest in companies with somewhat smoother financials, but that’s just me. I don’t mind volatility in a stock, but I prefer more secular growth in the underlying business.

    Cheers!

  64. Heh, I had a feeling that would be your purchase! If it was appealing last time, it’s definitely worth adding to when it’s even lower! Interesting how you say you don’t want to overallocate in energy right now. I can understand that when energy goes up again, it will make your portfolio even more out of whack. I do feel, however, that when energy goes up, another sector will come down. If you buy there, your energy allocation will by necessity decrease. I’m not convinced it’s the biggest deal in the world. But your choice is your choice, and I respect that.

  65. ST,

    Nice! I wouldn’t put my money where my mouth is if I didn’t feel like NOV offered substantial potential as a long-term investment. Could go anywhere in the short term, and volatility will likely persist for now. But I can’t imagine that this will be a poor investment 10 years down the road.

    Glad to have you as a fellow shareholder. 🙂

    Best regards.

  66. Jarmo,

    Nice move there on BHP Billiton. I believe it’s one of the best values on the market here right now. There’s still a ton of potential for the building out of civilization across the world. I’ve never been, but I see pictures of India and I can’t imagine they won’t need a ton of iron ore and energy looking out over the next few decades. I think this company will be just fine. Meanwhile, the recent volatility should shake out any weaker players.

    Best wishes.

  67. j-harr,

    I’m with you. What’s not to like about buying equity in a high-quality company at an even cheaper price? Especially when the initial price was already a solid value. NOV won’t be a core position for me, but I’m more than happy to add here with you. 🙂

    Take care!

  68. DM,

    This is my first post. I really enjoy reading your site. I think you have a way of crystallizing information that makes it accessible to just about everyone. I would be willing to bet you don’t retire when your dividend stream reaches your set goal. You are too good at writing and appear to have too much fun doing it.

    But moving on to a question off of the topic of NOV. You have not mentioned Mattel on your site. I am curious why (or maybe I have missed it). I was curious why you chose DIS over MAT last month, based on dividend and valuation. With MAT yielding close to 5%, it seems like it would be an ideal pick for you. High ROE, High ROIC, Low Capex. Any thoughts?

    Disclaimer: I own Mattel shares.

  69. Ralf,

    Right. Well, my concern lies with the size of my portfolio. It’s difficult to just maneuver around an overweight status in one sector by buying up stocks when other sectors are cheap down the road as a portfolio grows. For instance, I could stop buying energy stocks for more than a year and still probably have too much exposure there. As a portfolio grows, it becomes difficult to realign it. I didn’t really pay too much attention to sector weightings until I crossed over $100k. Now that I’m nearing $200k, it becomes more important to keep an eye on such things.

    As far as fees go, I typically pay $7 per transaction. However, I sometimes get free trades through surveys that my brokerage offers or through referrals. I think I had somewhere around 15 free trades last year, so I paid very little in commission fees overall. My fees are factored into the cost basis you see in my portfolio, so the cost basis is 100% accurate.

    Those fees over there are unfortunate. I imagine they’ll come down over time just like they did here in the US. It wasn’t that long ago that buying stocks over here was exorbitantly expensive for a small, retail investor. But that’s all changed now.

    Thanks for dropping by!

    Best wishes.

  70. I’ve got pretty much the same assessment of the picture.

    I looked at Rio Tinto as well but I was l unimpressed by comparison.

    BHP Billiton may have a rough 1-5 years ahead but the roadmap to profitable growth remains intact (China, India & other countries that want what we already have in the West).

    Good for us with a contrarian streak 🙂

  71. theinvestmentmd,

    Appreciate the support and kind words. I do enjoy writing, sharing, and inspiring very much. I certainly hope to be in a position to continue doing it well after I reach financial independence, as it’ll be wonderful to discuss the benefits of all that hard work. 🙂

    As far as Mattel goes, it’s really a completely different company from Disney. So they’re really not a good comparison in my mind. Furthermore, one is growing much faster than the other, whereas the other offers a high current yield. Mattel offers some pretty solid fundamentals, but I am concerned about about the business model looking out over the next 10-20 years. I just don’t know how much children are going to be playing with traditional toys with the onslaught of digital entertainment. Mattel seems like a solid bet here after it took a beating last year, but I’m just not sure if a traditional toy manufacturer like this is really where I want to be. There’s some lucrative licensing in there as well, so that’s a big positive. But is this an industry one wants to take a big bet in? I’m also concerned about the potential of stale brands. With Disney you get a little toy exposure, but a whole lot more. And the brands can remain new and fresh.

    Just my take on it. Best of luck with your investment in MAT. It might not be a bad idea to get in here at $30, but I know a lot of people were excited at $40 as well. I’d also be slightly concerned with that dividend. Hopefully, FCF can pick up again and start to cover it.

    Best wishes!

  72. MCC,

    Haha. Hate the game, indeed. 🙂

    Some investors get bummed out when they see a stock drop like this. But I’m extremely happy. I have no intentions of selling, so why would I be upset with the opportunity to buy more at a much cheaper price? Of course I wish I would have bought all 40 shares here at this level, but you just can’t time things like that. You nail some at the bottom, but most you don’t. The good news is that it’s completely unnecessary to do so.

    Thanks for dropping by. Wishing you the best of luck throughout 2015 as well. Very excited for another year of possibilities and opportunities!

    Cheers.

  73. Great fortune in energy!

    I also agree that oil is uncertain beyond the next 15 years, so I’d also like to avoid heavy positions in the big oil companies (although I do believe they will be the heavy hitters when it comes to investing in alternative energy given their liquidity), although recent weakness made it difficult to pass up adding to CVX and BP for me.

    I also initiated NOV recently around $63. Looking forward to seeing them take advantage of weakness and buy up some distressed assets later this year. Fortunately, I don’t care so much about a few % in either direction, given that my standard 2k purchase is under 1.5% of my total portfolio, and declining. Due to my available cash flow, I don’t see that purchase increasing much for a while, but it’s nice to know that nothing will break me but a nice mix of holdings while I continue accumulating will be great in a few years’ time.

    Hopefully there’s a bit more weakness ahead, but looks like cheap oil will help many other sectors in the short term.

  74. Ravi,

    Right. I’m in the same boat there. I understand the enthusiasm surrounding some of the majors due to their yield and what not, but if I’m thinking about the next 40 years (which I am), I’d have to give the nod to quite a few other sectors in regards to visibility.

    Same goes for me with the purchases. If I were betting real big – $10k or more a pop – then a large and rapid subsequent drop might bother me a little more. But diversification tends to smooth these things out. Some of the stocks I buy go on a run right afterward (like AMNF) and some drop (like BBL and NOV). All in all, I’d prefer the former scenario since I’m accumulating assets. Cheaper assets are by far and away a bigger benefit to me than an inflated balance sheet. I can’t pay bills with my balance sheet. But cheaper stock prices allows me to increase my dividend income, potentially forever. 🙂

    Thanks for dropping by!

    Cheers.

  75. DD,

    Definitely. I thought NOV was a pretty compelling value in the low $70s. The low $60s is a gift. I don’t plan on this being a large position for me, but if it were to drop another $10, I might have to scoop up another 10 shares. 🙂

    As far as weightings go, you’re right. As these stocks inevitably recover, the weighting will be even larger. Really depends on how fast that happens and what I buy in the meantime. However, my view on this has changed as the portfolio has grown. My ability to maneuver around weights by adding fresh capital was much greater when I was working with $50k or $100k. Now that it’s nearing $200k, fresh capital becomes more of a drop in the bucket than before. I could go the next year without buying one single energy stock and I’d probably still be a bit heavy there. And one year out of a twelve-year journey to FI is quite a time investment. I’d prefer a weighting closer to 10% or perhaps slightly under. I don’t compare my portfolio to the S&P 500, but I do like its energy exposure.

    Meanwhile, I don’t think some of these stocks are tremendous values anyhow. I was able to buy XOM in the high $80s not all that long ago, and oil was much higher then. My cost basis in CVX is near $100, also with oil much higher. So you can see that my enthusiasm is probably a bit different than someone with much less exposure there. BP appears to be one of the better values in energy, though its risk is much higher. It’ll be interesting to see what happens here when earnings start to come out. I’m not really in a rush to buy many of these stocks. Just my take on it. If they go up, then that’s fantastic. If they go down quite a bit, then my hand might be forced in regards to picking up more. It’s a win-win. 🙂

    Best regards!

  76. I think NOV is probably a good buy, I’v been looking at some of the energy/pipeline companies in my portfolio that have been hammered fairly hard from the drop in oil prices. There are some pretty cost averaging that could be well worth it. I’m just a bit antzy though on whether it will go down further, or the Q1 results of those companies will be so negative as to drive the stock prices down further, which would make for a better opportunity… I also went through some of them through morningstar reports in my brokerages research section to see if any new predictions were made and none of them were recent, and had predictions for oil as low as $70per barrel. So curious to see how Q1 results will play into that and revised analyses.

    Either way, I too might make an energy buy this month… the prices are getting quite tempting!

  77. DW,

    I’m also kind of excited/anxious to see what some of the earnings look like for these companies. I imagine those more focused purely on oil might start to hurt, but that could also take time to work its way through. But I imagine by the end of 2015 we’ll see exactly what kind of volatility is in store here. I’m hopeful that some of the really high-quality integrated companies like XOM come down quite a bit. Wouldn’t mind buying some Exxon around $80 or so. Looks like the majors have held up pretty well in comparison to some of the services stocks like NOV. But I go where the opportunities are. 🙂

    Happy shopping!

    Best wishes.

  78. Nice buys Jason…we bought a few shares of NOV back in December just before the Ex-dividend. I liked NOV in the mid 60s and nothing has changed but gas prices. I believe that both gas prices and NOV stock will eventually recover.

    We bought in at $65 so we may look to average down our cost basis later this month if the price remains in the low $60s. AFFJ

  79. DFG,

    Thanks for dropping by!

    The fundamentals are about as solid as they come. But considering the uncertainty in energy right now, anything is possible over the short term. But I do believe this is one of the better firms to own in energy over the long haul. We’ll know in five or ten years how this turns out. 🙂

    Hope all is well with the family.

    Best regards.

  80. AFFJ,

    Glad to be on board with you here. The quality appears to be quite high from everything I can see. If Mr. Market wants to give away high-quality assets for pennies on the dollar, who am I to turn him down? 🙂

    I’m with you on averaging down, though I’d probably have to see it in the low $50s before I’d strike again due to where I’m sitting with it.

    Let’s hope NOV continues to treat us well. Excited to see the next few earnings reports to find out how things are shaking out for them. The buyback should help down here.

    Take care!

  81. Taking advantage of the plummeting oil prices to average down on NOV is a great long-term value. NOV is the pick & shovel market leader for oil and natural gas exploration companies on land and sea. Like any commodity, oil will fluctuate wildly, so earnings will take wide swings. But the world continuously requires more oil & natural gas. Parts wear out, and the sophisticated rigs require significant maintenance, NOV’s bread & butter, with their branded parts on about 90% of the rigs deployed around the globe.

    I too exercised some greed on Wednesday, doubling down on Helmerich & Payne (HP) with the 7% slide on the ‘news’ they anticipate 40-50 contracted rigs to be idled in the next 30 days. Was this really a surprise? The panic sell-off pushed the dividend yield comfortably above 4%. With virtually no debt, 42 consecutive years of dividend growth, proprietary rig technology, and the market share leader in U.S. Land drilling, HP is a cornerstone (along with NOV) in the energy sector of my dividend growth portfolio.

    I never pretend I’m smart or nimble enough to catch the bottom, but content myself with a fair price. NOV, HP, and a half-dozen more wonderful energy companies are attractively valued right now, and I’m grateful I have the dry powder to add to positions that will be paying me generous dividends for the next couple of decades!

    Keep up the inspiring writing, and hopefully 2015 will offer similar investment opportunities in other dividend growth sectors as well.

    Michael

  82. Funnily enough, while you were buying NOV, I was taking advantage of the dip to finally take up a position in one of your other commodity favourites, BHP Billiton at £13.13. Better late than never, eh? 🙂

    Also took advantage of the market dip to buy my first tranche of Unilever and soft drinks giant, Britvic, who make Fruit Shoot in the US, and now have a 15 year licence to market and sell Pepsi lines in the UK and Ireland.

    Wishing you and Claudia a happy, healthy and prosperous 2015!

    Best regards
    Phil

  83. DM,

    Nice purchase, I just bought 50 shares of T, 40 shares of GE, 20 shares of BBL and 30 shares of UL…what are your thoughts on those right now?

  84. Thanks for the great info. I’m In Canada and also looking to get into some energy stocks. Given the current exchange rate, any advice on some Canadian companies I should look into?

  85. Michael,

    Thanks for dropping by.

    You’ve got it right there on NOV. Someone once compared NOV to investing in the companies that produced the picks and shovels to the gold diggers during the big gold rush, rather than trying to invest in gold. Similar thought process. I like investing in energy as I see a rising need for it, but I also like investing in those companies that indirectly benefit and are less exposed to commodity fluctuations. Rail, pieplines, and supply companies all fit the bill there. Oil and gas may fluctuate, but as long as the world runs on the stuff, these companies should stay busy regardless of the underlying price of commodities.

    HP is a smart play. I’m not a huge fan of drillers in general, but if I were to every buy a driller, it’d be HP. I looked at them not long ago for Daily Trade Alert and the fundamentals were very similar to NOV. The only thing I don’t like about HP is the fact that FCF didn’t cover the dividend last year. They just very recently started paying out a large dividend. So while they have 42 consecutive years of dividend increases, a respectable payout is nascent. Now they’re paying something sizable and it’s bumping against their ability to cover it. Factor in idle rigs for any period of time and I’m not sure how that works for them. NOV, meanwhile, was able to cover the dividend five times over with cash flow.

    But I’m with you. I don’t attempt to catch any bottoms and I don’t pretend like I have any ability to. But it’s not really necessary to in order to succeed with this strategy. Buying excellent businesses at fair or better prices will get you as far as you’ll ever need to go.

    Appreciate the thoughts!

    Best regards.

  86. Phil,

    Nice moves there. If I didn’t already have all the BHP Billiton I’ll ever need, I’d be buying it up hand over fist right now. I’m not real excited about being so directly exposed to commodities there, but the price is, in my view, too cheap to ignore here.

    I also hope to continue increasing my exposure to consumer companies like Unilever moving forward. Great products, relatively secular growth, stable dividends, excellent growth opportunities. Not much to really dislike other than the fact that some stocks there aren’t particularly cheap. Unilever is one of the few that seems to be fairly priced or better right now.

    Keep up the great work! Wishing you and yours a wonderful 2015 as well. 🙂

    Cheers.

  87. Tabula,

    Seems like solid moves to me. BBL and UL are stocks I’ve been purchasing lately, so I’m obviously a fan.

    T is one that’s been on my mind lately. I’ve thought about doubling my position. Just not completely sure. Running it through the dividend discount model analysis and I can’t come to 10% returns with it. Generally speaking, the sum of your yield and dividend growth is going to be a proxy for your long-term total returns. So I guess you have to ask yourself if you’re okay with 8% total returns there. Certainly there’s the time value of money, so I suppose high-yield plays like that (assuming the dividend is extremely safe) get a benefit of the doubt. More qualitatively, I’m concerned about increasing competition and increased spending in the telecom sector. The recent spectrum auction certainly raised some eyebrows.

    Best wishes!

  88. Ned,

    If I were a Canadian investor, I’d probably be strongly looking at Suncor. Good yield, pretty solid fundamentals, and seems committed to growing the dividend.

    The only issue there is that heavy oil is generally costlier to produce from the sands up there and it’s worth less on the open market. But those are long-life assets and the exploration costs are obviously lower.

    Cheers!

  89. I would have been interested to see a comparison of NOV’s P/E vs. competitors within its sector in addition to the S&P 500 as a whole. Compared to, say, HAL they’re at the exact price point. E.G. it’s not any better P/E than similar stocks and the energy sector as a whole is well below the S&P 500 — COP, CVX, XOM, BP are all 9-12 P/E range.

    From a qualitative perspective, I like NOV in my previous contact with them.

    Thanks,
    WE

  90. Just added some more PM. I had a hard time deciding whether to buy Unilever or PM but decided to go for the juicier yield even though I’m getting quite overweight on tobacco in my small portfolio. I just hope Unilever doesn’t go up to hard so I can add more to that position later this month 🙂 My dividend income projection for 2015 is closing in on the $800 mark with this new purchase.

  91. WE,

    Well, I did mention that NOV’s P/E ratio is at a significant discount to the broader market. For sake of comparison, the S&P 500’s P/E ratio is almost 19 right now. The industry average is 16.9 according to Morningstar.

    I don’t particularly think HAL is a good comparison since its growth isn’t even in the same universe (EPS has gone nowhere over the last 10 years). And they have different product/service bases, from what I can see.

    Hope that helps. 🙂

    Cheers!

  92. ThomasDV,

    PM is one of my top ideas for this year. But I already have enough for a lifetime. A yield near 5% backed by growth in the upper single digits provides the backdrop for very solid total returns. I think the a big risk is the potential for further plain packaging across the world. Outside that, I think they should do really well over the next decade and beyond. Electronic products are an exciting new growth category as well.

    Best regards!

  93. I was seeking a comparison to other stocks within NOV’s. For example, writing about KO I would find it useful to mention PEP’s P/E for comparison.

  94. WE,

    Well, again it’s not always apt. A P/E ratio isn’t really the end-all, be-all for a stock’s valuation. Some companies even within the same sector don’t grow at the same rate. Though HAL works in the same industry, it hasn’t grown much at all over the last 10 years. So a P/E ratio of ~10 for both stocks wouldn’t really be a great comparison. If one stock in one industry is growing at 7% and the other at 4%, then the latter should have a much lower P/E ratio. Thus, comparing the two wouldn’t really have much value.

    But the industry P/E ratio probably isn’t a bad place to be there. And that’s what I included above.

    Cheers!

  95. Hey Jason,

    Nice write up on this company…thank you for taking the time to share your thoughts!

    I like this company too…but one thing concerns me. Looking back at the last 5 years the overall stock market has done well!

    NOV’s price hasn’t gone up much? What am I missing?

    Your thoughts?

  96. Chris,

    A lot of stocks in energy have taken quite a tumble over the last six months. If you would have pulled out a five-year chart seven or eight months ago it would have been a very different story. Stocks like XOM and CVX have performed similarly over that time frame.

    That said, I’m certainly very happy about that. If you’re looking for stocks that always go up before you invest or ones that outperform the S&P 500 over a certain time frame, you’ll likely be paying a premium more often than not. I look for stocks that are high in quality that are down on their luck. Thus, they’ll more often trail the market over the short term. Pull NOV’s chart out to 10 years and it has killed the market. So you have to think like a long-term investor.

    Best wishes.

  97. I would think we all hope we can pick stocks that outperform otherwise we would just index?

    What I was getting at…and evidently didn’t communicate, was that I am surprised that NOV’s price has been actually relatively flat the last 4-5 years even before this past down turn. t’s CAGR is about half of the S&P during that time period.

    Regardless I think this is a great company and this us a special time to take advantage of this pricing opportunity.

    Cheers!

  98. Chris,

    “I would think we all hope we can pick stocks that outperform otherwise we would just index?”

    Sure, on a total return basis I expect my holdings to outperform the S&P 500. It’s not a primary concern, but the growing income is. Nonetheless, as I pointed out, NOV killed the S&P 500 over the last 10 years. Is that not outperformance?

    I think you have to be careful with your perspective and time frames. You can shift stocks and the market around to different dates and get the performance you’re looking for. I just ran Google Finance with NOV against the S&P 500. From 8-28-09, the S&P 500 is up 99.18%. NOV is up 113.25%. However, this really doesn’t matter. If anything, I’d prefer NOV up 10% over that time frame. Why would I want to buy a stock that has been bid up? I’d much rather buy a high quality asset in distress. Over the long haul, that asset will perform as the underlying business operations will. If it’s a poor business, the stock will likely perform in kind. If it’s a great business, one should do well.

    The market is a voting machine in the short term. It’s a weighing machine in the long term. I try to never forget that.

    Best regards!

  99. Hi DM

    Great buy as usual
    I added to my position to BBL as the price is to low to pass up
    Hopefully will add next month to my position in NOV
    Any thoughts on BTE?
    Best regards

  100. DM,

    Just added to my positions in NOV,OKE this morning, couldn’t resist! For my portfolio their ripe for the taking, will see how I fare. Still looking to open a position in UL but haven’t pulled the trigger yet. Am I missing anything in this market to buy????

    All the best,
    j-harr

  101. acidtestdja,

    Agreed 100%. BBL appears to be one of the clearest and best values on the market right now, in my view. It’s just unbelievable at this level. I’m excited to see how this looks in five or ten years. 🙂

    I’ve never looked at BTE. Looks like a royalty trust. I’ve never been able to figure those out. They’re basically a depreciating asset, except they own no assets. Looks like it recently slashed its payout pretty heavily as well. This one falls into the “too hard” pile for me.

    Cheers!

  102. j-harr,

    Nice buys there. You caught both at or near 52-week lows! 🙂

    Tough to find much value outside of energy or basic materials right now. I’m honestly not sure what I’m going to be buying next, but I may have to take a month or two off to shore up some cash for taxes. Depends on how much I’ll owe.

    Keep up the great work!

    Best regards.

  103. DM,

    Have you considered using Motif investing ? Lots of advantages for you, your fans and ignorant investers like myself ( trying to get started )

  104. Byculla,

    Yeah, I’ve looked at Motif a bit. Not sure I find a lot of value in it. The fees aren’t substantially less for individual stock buying/selling ($4.95) and to initialize a “Motif”, you’re looking at $9.95. Furthermore, are there 30 undervalued stocks I could pick out right now? Probably not. Maybe half that number. And I might be more enthusiastic about some than others, which is where my capital would go. And a few others (BBL and IBM) are already pretty maxed out in my portfolio.

    It seems a bit gimmicky to me, to be honest. It favors diversification at the possible expense of valuation, which is one of the aspects of index investing I don’t like. I think if instant diversification were my thing, I’d probably just buy an index fund or two and be done with it.

    I guess it comes down to: Do you know of 30 undervalued stocks right now? If that’s the case, then I think there’s value there initially in the platform. Buying (and selling) down the road, however, comes with much less value. You might be looking at two motifs max, and then it’s $4.95 (or possibly $9.95, depending on how you structure your purchases) from there.

    Hope that helps. 🙂

    Cheers!

  105. Any thoughts on RHHBY? It’s been trading in a tight 8% range the whole year, and is back at the lows again. Raised dividends every year (in swiss francs) since 2001. It would help to add more health care and european holdings at the same time. Valuation isn’t great at ttm pe pf 22, but that’s the case across the board for health stocks right now.

    I’ll be adding either that or probably some more UL this week.

  106. Justin,

    I’ve honestly never taken a look at RHHBY. I generally avoid foreign domiciled stocks that aren’t based in the UK or Canada due to ease of investing and tax concerns, but Switzerland is a close third place for me. I’ll have to take a look, but I generally avoid healthcare plays that are largely pharmaceutical. That’s why I haven’t invested in any of the big domestic drug plays like Pfizer or Merck. Perhaps I’m making a mistake there, but I remain concerned about pipelines and patent cliffs, which can cause a big drop in earnings for years. Glaxo is one I might take a good look at here. Based in the UK and they’re increasing their consumer exposure through the deal with Novartis.

    Cheers!

  107. Bought NOV today at 58.50. I wonder if the industry will drop again at the end of January when earnings start coming in. OKE is down 10% since I bought. I just started divedend investing a couple months ago and oil is where the bargains are so besides PM I am all in oil. I am thinking long term so it’s not keeping me awake at night, but how do you deal with the volatility and wanting to buy more.

  108. Pygmycoho1,

    Great buy there. Glad to have you on board as a fellow shareholder! 🙂

    Volatility just doesn’t bother me at all. I suppose there’s no way for me to really explain that, but either bouncing stock prices bother you or they don’t. I look at a stock like NOV. Instead of anchoring its price to what I paid, I anchor it to what I think it’s worth and what I think it’ll be worth 10 years from now. When you think like that, volatility becomes an opportunity and action like this is very exciting.

    Best regards.

  109. Nuno,

    Not all of energy is a value right now, but NOV appears to be one of the better individual values. The oilfield services companies have been hammered particularly heavy. It seems disproportionate to me. Either way, I’m confident volatility will remain for a while. But these are long-term investments, and I’m more interested in where NOV might be 10 or 20 years from now. With that perspective, I’m an enthusiastic shareholder here. 🙂

    Best regards.

  110. nothing to do with NOV (I just cant get into oil/gas stocks) but.. i remember you bought DIS not too long ago and I was trying to rattle my brain to find an “entertainment” related stock to rival DIS.. now, not that there really are any true rivals in comparison to size, duration of operations, brand recognition, etc, but I don’t believe in the movie industry having a future, among many other things. With all of that said, I have been looking at GameStop (GME), and I think you should too. It seems to be a great company, at a great price, with a great dividend, that is growing, and that has a strong management team behind them that ALSO values aggressive buy backs for capital appreciation to top it all off. Seems like a steal. The only thing they DO NOT HAVE going for them is dividend history. It’s short.. but, they are strong strong strong otherwise. Any thoughts?

  111. oliver,

    If I were looking for a rival to DIS, I think the first place I’d look is Comcast. They have a big network, theme parks, and ownership of major content. The difference there is that they also have substantial assets in content delivery.

    GME is obviously not in the same universe here, though the fundamentals look somewhat solid. I, however, worry about their future. I personally play video games (not hardcore, but time to time) and I see the digital model breaking out. That will undercut GME in a big way moving forward. Somewhat similar to Amazon and what happened with some of the big bookstore retailers. I think one has to tread very carefully around retailers in general, but GME just doesn’t really fit the bill qualitatively for me. Wish you the best of luck if you invest here, though.

    Cheers!

  112. Hi!
    I was just wondering with your purchase to NOV are you expecting oil to rebound to its former levels rather fast? What if oil stays low for the next two years or longer? Is this still a good investment if oil stays low a long time? I know some people are saying this might be a new normal for oil. Anyway I think your blog is just great and very inspiring!

  113. Sampo,

    I honestly don’t have any expectations for oil to go one way or another. Just not something I or anyone else can really predict. Those that are saying “this might be a new normal” have no idea what they’re talking about. Just not something that’s possible to know. Oil could be back to $100/bbl by the end of the year or it could be $30/bbl. What we do know is that oil has a long history of volatility, so the recent activity shouldn’t really surprise anyone.

    That said, NOV’s been around for more than 100 years. They’ve operated under circumstances where oil was much lower than it is today. Fortunately, we can even see the numbers they posted when oil was much lower just a few years back. The dividend might grow much slower or not at all if oil goes even lower and stays there for a couple of decades, but the company isn’t going anywhere. Meanwhile, they’re diversified across the world and across both oil and gas. Demand should stay strong for both commodities over the long haul, so I have no worries there.

    Best regards!

  114. Thanks for the quick response! Other quick question I have is what do you think of YUM? I know you own MCD but could you consider buying YUM? There is some big growth potential in China but risks aswell.

  115. Sampo,

    YUM is in somewhat of a similar predicament as MCD and that’s basically selling mediocre food at a value. Their food is arguably perceived to be low in quality and not particularly healthy. Recent flaps regarding the health of their food over in Asia isn’t helping that perception. Furthermore, I’m not sure if the valuation/yield offers enough to like there to protect the downside in a competitive marketplace and changing tastes. Just my take on it. YUM could do really well and I like their diversification across multiple food/brand offerings. And they’ve caught on in China more than some of their competitors, but it’s tough to carve any kind of economic moat in the QSR industry.

    Cheers!

  116. dzogen,

    I’m pretty tempted here to average down again. I didn’t want NOV to be a large position, so my last purchase will probably be my last. As such, I have to be careful there. We’ll see. I think it’s incredibly cheap here, regardless of the situation with oil.

    I would take one firm’s opinion with a pretty big grain of salt.

    Cheers!

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