Recent Buy

buy

More volatility? Yes, please.

Just when I thought I was out, they pull me back in.

– Michael Corleone, The Godfather: Part III

That’s kind of how I feel about this most recent purchase, though. It’s a buy in the Energy sector, which is a sector I’ve been actively trying to dance around a bit.

I’ve discussed before that I’m overweight on energy holdings right now, and really have been for some time now. And that has occurred because I tend to take what the market gives me. I go where the value is, assuming quality is there as well. And the quality and value have both been present in that sector for a number of years now, which is why I’ve been fairly aggressive there over the last three or four years.

Well, the market giveth, and I taketh once more.

I had no intentions at all of averaging down again on the stock I’m going to discuss below. But I continue to believe the value is too compelling to pass up. I last purchased this stock in February at a price a bit more than 15% higher, and I thought that higher price was already very attractive. So you can imagine my surprise and excitement when I see a deal upon a deal. If the best time to be greedy is when others are fearful, then I feel good about my greed here.

I purchased 20 shares of National Oilwell Varco, Inc. (NOV) on 7/8/15 for $44.58 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, as well as oilfield services.

The company conducts operations in over 1,200 locations across six continents.

They operate in four segments: Rig Systems (42% of fiscal year 2014 revenue), Wellbore Technologies (24%), Completion & Production Solutions (20%), and Rig Aftermarket (14%).

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 essentially a one-stop shop for their clients. Anecdotally, they are nicknamed “No Other Vendor” as a play on their stock ticker, referring to their dominance in their product lines.

Averaging Down Hard

I started purchasing this stock late last year near $70 per share. I then averaged down near $60 per share at the start of 2015 before my last purchase noted above. I planned on that being it, but NOV continues to drop and I continue to remain interested.

Averaging down really requires conviction and confidence. And that’s because if you’re wrong, you’re simply throwing good money after bad. If you buy a stock that’s worth $20 for, say, $50 and something happens to make the stock only worth $10, then averaging down over and over again isn’t a very good idea.

But I continue to think NOV isn’t just a really high-quality company that’s worth much more than what it’s trading for, but I believe the company will continue to grow the dividend, buy back shares, and eventually see the stock price recover.

I’ve averaged down hard like this before, and it’s generally served me well. Stocks like Digital Realty Trust, Inc. (DLR) and Target Corporation (TGT) fell significantly after initial purchases, only to later see both the respective dividends and stock prices rise.

As I’ve stated many times before, I quite look forward to the opportunity to average down on a stock I’ve already bought, assuming the long-term picture hasn’t drastically changed. I can’t predict what’s going to happen tomorrow. But I can predict with some reasonable accuracy that high-quality companies will be worth more with greater profits and bigger dividend payouts over the long term. As such, the less I pay to buy into something like that the better.

Solid Numbers During A Difficult Period

That’s in general terms. Specific to NOV, they continue to be plagued by low oil prices and reduced demand for their systems and products, which have weighed heavily on the firm. Although Q1 2015 results were actually incredibly solid considering the circumstances – Rig Systems (their largest segment) reported a revenue increase of 12% YOY – much of their business was a result of the backlog, which continues to dwindle. That means the book-to-bill is low, indicating that new orders have basically dried up. At $11.9 billion, the backlog is down significantly from the $14 billion it stood at at the end of fiscal year 2014.

Earnings per share is down considerably due to the headwinds they’re facing, but there is a silver lining here. The low price of the stock isn’t being noticed by just yours truly:

During the first quarter of 2015, the Company repurchased and retired 24.5 million shares of its common stock at an average price of $54.35 per share for a total purchase price of $1.3 billion. Since initiating a share buyback program in September 2014, the Company has repurchased 43.3 million shares or 10 percent of its shares outstanding, at an average price of $57.38 per share.

– Per the company’s Q1 report.

Buybacks can be criticized (management can’t time the stock market any better than anyone else), but I’m excited by the prospect of NOV retiring 10% of its shares outstanding at a price of $57.38 per share. The stock is obviously priced lower than that right now, but I personally would be very happy with 10% of the company at under $60 per share.

Moreover, the company remains fundamentally sound. They have an excellent balance sheet that allows them to remain flexible and a still-sizable backlog that should help buoy results for the rest of the year; and many of the products they provide eventually wear out, which should lead to improved orders down the line.

I always say that short-term volatility is a long-term opportunity. NOV has “been there, done that” in regards to volatility in oil pricing and business over the last 100+ years and they remain, thankfully, focused on the long term:

We have the financial resources to invest in acquisitions, as well as the transformative new technologies we have a long history of pioneering. Cyclical downturns provide extraordinary opportunities to deploy capital to better position our enterprise for a recovery. While we don’t know the duration of this downturn, we know that we will be better when the recovery comes.

– CEO, Clay C. Williams, in the Q1 report

I couldn’t agree more, Clay. That’s why I used this extraordinary opportunity to deploy capital and acquire shares in NOV. I had the financial resources to fund that acquisition, and that’s exactly what I did.

Risks

NOV’s major risk is the potential for a protracted drop in oil prices. If this situation remains as such for a long period of time, it very well could impact NOV’s ability to grow operations and its dividend. NOV is diversified across products and geographies, but they still rely on producers’ capital expenditures budgets.

In addition, they’re an aggressive acquirer, which could result in overpaying or integration issues.

Lastly, failure of a major component could tarnish NOV’s brand name.

Valuation

The stock’s P/E ratio is just 8.83 right now, which includes depressed Q1 EPS. I find that extremely compelling. The five-year average P/E ratio for this stock stands at 14.1. Now, it’s very likely that EPS will remain weak throughout at least the next couple quarters, which will further depress TTM EPS and increase the P/E ratio (assuming the price stays at this level). But I happen to think NOV will be just fine for the long term. Results held up very well during the last significant drop in oil prices (2009), and they’re actually a larger company this time around.

I valued shares using a dividend discount model analysis with a 10% discount rate and a 7% long-term dividend growth rate. I lowered that growth rate slightly compared to my previous analysis to factor in the possibility of protracted weakness in their industry. But this growth rate is about 1/3 that of the firm’s EPS growth over the last decade. I think that’s a fair or even conservative long-term assumption. The DDM analysis gives me a fair value of $65.63.

Conclusion

Like I’ve mentioned many times now, NOV has been through the boom-and-bust cycles of the oil industry for about as long as the oil industry has been around. If any company is equipped to take advantage of the current market, it’s this company. The company’s financials remain incredibly strong, which puts them about as in control as they can possibly be, all considered.

My only issue with this stock is really the fact that the position is now a bit larger than I planned on it being. Not only am I overexposed to energy holdings in general, but certainly NOV specifically. I may use a tax-loss strategy to unload some more expensive shares to offset some capital gains I have and reduce this position somewhat. I’m 50/50 on that right now. But it’s not out of a lack of confidence in the stock. It’s rather about managing risk and exposure.

This stock is now down 30% YTD and approximately 45% over the last year. I suppose you have to ask yourself if NOV is permanently impaired that much. Is the business really worth about half of what it was last summer? I happen to believe not. The stock appears to offer a considerable margin of safety here, outside of oil staying at current levels indefinitely.

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

I’m going to include current valuation opinions from other analysts below, which I use to concentrate my reasonable valuation estimate:

Morningstar rates NOV as a 5/5 star valuation, with a fair value estimate of $66.00.

S&P Capital IQ rates NOV as a 3/5 star “hold”, with a 12-month target price of $58.00.

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

Full Disclosure: Long NOV, DLR, and TGT.

What do you think of NOV here? Does the stock appear cheap to you? Why or why not? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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97 Comments

  1. Nice buy Jason. NOV has all the makings of a solid investment. I just bough BHP Biliton and will look to buy ExxonMobil and/or Chevron on future oil weakness. I loved the income/expenses post the other day. Glad things are working out so well for you buddy.

    I’ll be down your way for Labor Day weekend. I’ll drop you a line once I have firm plans. It will be good to see you again! Take care
    -Bryan

  2. Great move. I’ve bee eyeing my CVX position, which I initiated at the $100/share mark and haven’t added to it. I think it’s now a good time to average down, as my brokerage account is showing a -11% on that position and it’s currently trading at $95.55/share.

  3. Actually I bought CVX at $108/share, which explains the -11%. I definitely need to average down on this one

  4. I also own NOV and its a great buy, with oil prices being down, it is great deal to have. I added WPC and O this week and will be posting on my blog! Keep adding and yep, volatility is nice to have and a perfect time to collect!

  5. Ive been looking at averaging down with NOV but I have the same issues. O&G is a large portion of my portfolio and dividends and NOV is a larger position than I’d like it to be. But I definitely see the value here.buting more shares now and selling some later to get the position whete I’d like and harvest the tax loss seems like a great idea here. NOV’s value right now is pretty much where I think you either have to average down or sell out because you dont have conviction in the company. The buy and tax loss harvest would let me keep the position at a manageable level. Thanks for the update!

  6. Jason,

    Smart move. I’ve been on the road this week and not paying attention to the news, but one thing I know is we still drive a ton and oil is not going anywhere. In fact I would wager that the state I am in now, Texas, could support the entire industry if it wanted to… That being said, I believe in the regression to mean or median if you prefer that like me, and in this case that is likely up. Congrats on the income.

    – Gremlin

  7. Congrats again. I’m looking to add to PM. I THINK I missed the major growth days, their payout ratio is getting very high.

  8. Bryan,

    Thanks so much. Things are rocketing along. Just trying to hold on! 🙂

    Yeah, it’d be great to meet up. I don’t have a car anymore, so I’m a bit limited in terms of how far I can go. But definitely let me know.

    Keep it up over there.

    Best regards.

  9. Joel,

    Yeah, any companies that rely heavily on the price of certain commodities (like oil) will naturally be quite volatile. So it’s just one of those situations where you have to make sure you’re comfortable with that volatility and you keep an eye on the fundamentals as you go.

    My cost basis on CVX is right around that $100 or so level. And it’s a pretty large position. So I’m not particularly enthusiastic about more here. But if it dropped significantly, I might be pretty interested. XOM is one I have a little room for. We’ll see. 🙂

    Thanks for stopping by!

    Take care.

  10. Jason

    I recently commented to you about becoming a Dividend Growth Investing guy at 53. One of my first purchases was 28 shares of NOV at $54.44ea., 23 shares of KMI for $41.58ea. and 22 shares of XOM for $87.71ea. a couple of months ago. I also bought 11 other stocks not in energy, JNJ, EMR, PG, TROW, WPC, KHC (wild card this week) etc. to diversify. Being new to this I have bought into the long term idea and DGI. Seeing my purchases fall by that much, especially with all the doom & gloom about $10.00 per barrel oil coming I have not been panicked to sell but have been reluctant to average down. I am attempting to make at least 1 purchase per month around $1200 – $1500. When I saw your buy my first thought was “that takes balls” but then I realized it is consistent with your strategy and that I have to take the same approach. Forget the noise. I think it is to early for me to be any heavier invested in energy until i diversify more as 30% of my portfolio is in energy. To many bargains, not enough capital. Hopefully in 3-5 years I will look back and realize I made some great purchases that are really starting to grow.

    Also, what are your thoughts on KHC?

    Great post. Keeps me on my toes.

    Bill

  11. R2R,

    I’m with you. Bring on the volatility! 🙂

    I’ve been pretty disappointed with what we’ve had over the last couple weeks or so. So much going on, but stocks have barely budged. Just can’t time the market. Fortunately, time in the market matters a lot more than timing the market for long-term investors.

    Best regards!

  12. JC,

    I know how you feel. I’m about 50/50 on the tax-loss strategy. NOV is a bit bigger than I’d like it to be, but not so large to where I’m particularly concerned. Definitely can’t buy more, though. I’m kind of locked in now. Over time, it’ll temper somewhat as I buy around it and reduce the position size through additions (rather than subtractions). We’ll see.

    Cheers!

  13. Gremlin,

    I haven’t been on the road, but I also haven’t been paying attention to the news. I guess that’s a benefit of not having cable. 🙂

    We’ll see where oil goes from here. I think over the very long haul, alternative energy sources will start to meet increasing demand. But I think O&G still has a few good decades left in it. And there’s only so much of the stuff…

    Thanks for stopping by. Stay safe out on the road!

    Best wishes.

  14. Bill,

    It definitely takes a certain mindset and psychological position to look forward to cheaper prices. It just goes against most people’s nature. And it also just doesn’t work for some people. Some people will always panic when stocks fall dramatically. And some people shouldn’t really be heavily into stocks in the first place. But that’s just something one has to figure out for themselves.

    Averaging down is generally a very good strategy. But you also have to make sure you’re okay with the volatility. And you also have to keep an eye on the fundamentals. Not all sales are created equal. Some stocks drop because they’re genuinely worth less (due to some kind of deterioration in the business).

    I actually don’t follow KHC at all, though. I followed KRFT somewhat before the news came out, but found the lackluster growth, debt, and valuation as enough to keep me away. I’m even less interested now. But it’s funny to see so many companies being bought up for fairly sizable premiums. Makes me think the margins of safety I’m achieving are larger than I think they are.

    Have fun over there!

    Best regards.

  15. Been following you for While since I started investing. I rarely sell, but where’s a good spot to learn about tax harvesting as you mentioned?

  16. Great purchase, the recent drop in oil is really tempting me.

    I haven’t done my due diligence yet to feel comfortable purchasing, but the sector is definitely worthy of some time.

    The great thing is you’re likely buying stock with a portion of your book revenue this month , meaning it will keep paying you for a long time.

    Win win for everyone involved

  17. I can’t believe how far NOV has fallen in price! I’m actually trying to resist the urge to buy more of it right now simply because I’m overweight on energy and underweight in available capital. I’m trying to buy HSY for what seems like a once in a lifetime chance average down at a non-ridiculously high price, UNP to diversify (and double) my railroad holdings (which I am underweight on), and HCP in order to get another foot into the health care industry with almost none of the risk (as a REIT, HCP is a landlord rather than a provider, so any hiccups in revenue or issues with the country’s health care system shouldn’t affect it at all as long as its tenants can still pay their rent). I shouldn’t be even looking at energy companies right now.

    And yet…………dat price.

    What’s funny is that when I saw the snippet on the main page and saw that it was an energy buy, I thought to myself that it had to be NOV. I sure called that one.

    Sincerely,
    ARB–Angry Retail Banker

  18. Hey Jason
    I like this buy on NOV. I just average down on my position on CVX 2 days ago. no doubt that NOV and CVX will pay us a good dividend for a long time. As I heard one time there’s profit during confusion, so lets profit. Again you will profit during others confusion on NOV good job. Cheers

  19. Hey Jason,

    Great conviction averaging down on this one, looks like a pretty solid decision that will reward you plenty in the medium term. I’d love a little more cash right now to do some averaging down in some quality stocks myself!

    Cheers,

    Jason

  20. NOV is a good buy. I have about 90 stocks position in it. I am 2% down from my average cost. I would like to add 20 to 30 more stocks if it drops 5-7% from its current price. I would not worry about having larger position in NOV. I think NOV is a blue chip stock and I can sleep well with it knowing that it has risk attached to it with crude oil price.

  21. (I always feel a little guilty for adding a comment due to your diligent/consistent replies and never ending growth in popularity ☺)

    7/14 and—poof! All out of capital. Good times and no regrets. I averaged down in CVX, XOM, KMI, and bought me some sweet SO comfort at its low. I even got a little BP @ 6%. WOOT! Now that’s some risk on behavior that I hope my future self will be rewarded exponentially. No fear. If need be, I’ll average down again.

    Excellent read and analysis of NOV. Whenever I read one of your recent buys, it’s like looking at candy. I need me some of that. But, not to be for me. I get to sit back and read your buys for the rest of the month. Did I see CAT? Nice. Congrats! Brilliant. Ka-ching!

  22. RTR,

    Absolutely! Reinvesting passive income back into… more passive income. 🙂

    The drop in oil has definitely provided for even more opportunity where there was already some pretty solid opportunities anyway. I’ve tried to temper my enthusiasm there because of my own exposure, but, hey, I won’t pass up an extremely compelling deal.

    Thanks for stopping by!

    Best regards.

  23. ARB,

    So many stocks, so little capital. I know exactly how you feel. I feel like that pretty much all the time. 🙂

    I’m also astonished by how far NOV has fallen. And then other stocks hold up surprisingly well when operations are weak. You just never know how it’s all going to play out. But it’s sure fun to grab those deals when they pop up!

    Best of luck deciding where to go with the capital. The good news is that all of those stocks will very likely all be available next month and the month thereafter.

    Cheers!

  24. michael,

    Profit during confusion. Absolutely. That’s basically the maxim for the stock market at all times. 🙂

    Let’s hope we continue to have these great opportunities to buy high-quality stocks for far less than they’re worth!

    Best wishes.

  25. Jason,

    Be greedy when others are fearful, right? 🙂

    We’ll see how it goes here with NOV. I don’t see any near-term catalysts. But I also don’t see any reason why they won’t continue paying (and growing) their dividend. And I can’t see how “this time is different” for a company that has more than 100 years of history behind it.

    Thanks for stopping by. Hope you come into some more capital for some averaging down over there!

    Best wishes.

  26. AJ,

    You’ve got a much better cost basis than I do. I thought it was at least fair at $70. Then a good deal at $60. Then a steal at $50ish. But down here in the mid-$40s, it’s crazy. I’ll take what Mr. Market gives me. I can’t imagine buying NOV here disappoints anyone with at least a 10-year time frame.

    Looking forward to profiting alongside you for years to come. 🙂

    Cheers!

  27. divy,

    Hey, don’t feel guilty. I love communicating with like-minded investors/savers/freedom fighters. 🙂

    Nice moves over there. I can see why you’re out of capital now. That’s staying very aggressive. I like it!

    If I weren’t already pretty heavy on some energy names, I’d be all over some of these stocks. As you can see, I’m still staying fairly aggressive even with the exposure. Gotta buy the sales when they’re there.

    Appreciate the support. Doing all I can to share and remain transparent with things. Should have the article on CAT ready to go next week. I’ve not been a huge fan of the stock/company, but the dip into the low $80s seems to have presented a pretty attractive long-term opportunity there. Again, gotta buy the sales on quality merchandise. 🙂

    Thanks for sharing. Glad to be a fellow shareholder with you in a number of great companies. I’m confident they’ll continue to serve us well.

    Best regards!

  28. I can’t believe all the trades Jason has been making. It takes balls to trade like he has been in this market period! Way to ignore the noise! And that was an awesome average down, you caught that little bottom perfectly! I’ve been watching NOV for at least a year now with them on my watch list. I think they are a solid company and with a nickname like “No Other Vendor”, just speaks volumes! They are the top dog in their sector.

    Awesome blog Jason, your totally inspiring me!

  29. Jason,

    I am in the same page than you according the averaging down, I always try to do it when cash is available. My RIGN.VX (Transocean) was first bought around the 45 USD level and I bought more when they 16 USD, my average is now around 22 USD. I still have 50K in cash to invest but I will probably not buy at 13-14 current price fluctuation as it represent already around 15% of our portfolio.

    Cheers and Jason buying is on the run.

    RA50

  30. Daryll,

    Thanks for the support! 🙂

    Yeah, you’ve gotta ignore the noise out there. If you’re a long-term investor, then all that really matters is business performance. If Mr. Market feels particularly gloomy about a great business, then I say take advantage of that.

    I’ve looked at the numbers before, and even investing at horrible times (right before a major crash, say) doesn’t really impact your long-term performance all that much. Time in the market matters much more than timing the market. And, besides, I’d quite like to see things drop by 10% or 20% across the board. Higher yields and more income for my money.

    Glad you’re finding some inspiration here. Doing what I can!

    Best regards.

  31. RA50,

    Hey, if you like something at $45, then you should be absolutely over the moon at $16. 🙂

    But you’re right. You kind of have to be diligent there and make sure not to become too enthusiastic. We have to make sure we’re not taking on too much risk. I’m cognizant of the fact that the portfolio is still growing and current exposure will change over time, but I have to manage that risk all along the way as well. So it’s just balancing all of that out, which will be different for each individual.

    Have fun shopping when you’re ready to unload that massive cash pile!

    Best regards.

  32. Hi Jason,

    Nice buy here with NOV, I’m a shareholder too. Do you think there will be a dividend increase in december? I think management is going to take it easy here and I doubt we’ll see a high dividend increase. Thanks for the report and stay hungry bud!

  33. Sampo,

    Glad to own a slice of the company alongside you. 🙂

    Tough to say on the dividend increase. Management may very well decide to stay pretty conservative, and I wouldn’t blame them at all. Either way, this year’s total payout is going to be quite a bit higher than last year’s. And you’ve got a lot of dividend growth kind of front-loaded due to the very high dividend growth rate over the last few years. But that’s also led (along with the price decline) to a 4% yield, which is obviously incredibly attractive with or without a dividend raise this calendar year. But we’ll see. SLB probably surprised some people with a rather large dividend increase earlier this year, so it’ll be interesting to see how that plays out with NOV.

    Cheers!

  34. Hi Jason,

    You know already that I bought 100 shares of NOV at $44.18 last week… If I had the capital I would have picked up an even 1000 shares, as that’s my target position for NOV. I had a bunch of cash to deploy in June but realized the portfolio needed JNJ, WPC and OHI plus a doubling of PM. So that’s where I spent all my cash. Sadly I was a few weeks early and missed the incredible bargain with the Greece saga and Chinese market selloff but that just goes to show you can’t time the market. So I’m opting for time in the market. I’ll let you know that goes over the next 5-10 years.

    -Mike

  35. Mike,

    I don’t think you really missed out on much at all. I barely saw any volatility at all, which is really unfortunate. I literally had people emailing me telling me the market was going to crash like 10% or 20% after the referendum came out, but we didn’t see that at all. You just can’t predict this stuff. But even investing at market peaks tends to work out if you stay invested for the long term.

    Great job picking up some really solid bargains over there. Always a sale somewhere. 🙂

    Best regards.

  36. Jason
    Is this NOV holding in an after tax account? You may have mentioned it or I just wasn’t paying attention.
    If so why Don’t you sell the higher priced shares and take the tax loss benefit. You can avoid wash rules by waiting 30 days

  37. Jason,
    I added 50% to my position last week at about $45 per share. This brought my average price down from $60 to $55. To get the average down another 5 dollars per share, the price would have to drop to $35 (if I bought the same number of shares as last week). I kinda really don’t want to see it go that low, but if it does, I will be a buyer.
    Best wishes,
    Keith

  38. Nice. I just purchased a rather large stake in HAL. For better or for worse, I just could not ignore it. It’s definitely a buy and hold stock for me. I’d say the same for your most recent purchase.

  39. Great pickup! I feel that NOV is one of the overlooked stars in the oil sector. It has a fantastic balance sheet with low debt levels, and is able to cover its dividend with ease. This should bode well for you, Jason.

    With regards to diversification out of the oil sector; considering you are so young and a steamroller with buying stocks on such a regular basis, you will be able to diversify further whenever the energy sector rallies back up and another sector falls out of favor. Just my $.02

    Best,
    Dividend Odyssey

  40. Jason are you averaging down into your Scottrade or are you purchasing new positions with your Trade King account? How does that effect you tax wise as Amegalo asked above? (ie would you need to keep manual records of your cost basis?)
    -Rich

  41. Great buy Jason. I did the same thing adding 40 more shares of NOV 2-weeks ago. The market hate this stock right now but I love the potential future returns it provides. Best of luck to you with NOV.

  42. Great company, looking to initiate position myself, but if OIL continues to slide we could easily dip into 30s – charts indicate we are breaking to the downside today.

  43. Amegalo,

    Yes, all of my holdings are in a taxable account.

    I mentioned in the post I might use a tax-loss strategy to retire earlier/more expensive shares. But I would only do that if I really want to reduce the size of the position. It’s not out to time future buys or anything like that. The tax savings would be somewhat modest in the end. We’ll see.

    Cheers!

  44. Keith,

    Yeah, I’m with you. Now that I’m not particularly interested in buying any more NOV, I’m also kind of hoping we don’t see it down at that $35 level. Although, the flip side of the coin is that if it does get that cheap, I hope the company is buying up shares extremely aggressively. I may not have enough capital or room to go all that crazy on the stock at that level, but NOV sure does. 🙂

    Glad to be a fellow shareholder here. It’ll be very interesting to see how this pans out over the next five or ten years.

    Best regards.

  45. Chris,

    Ahh, the competition. 🙂

    Wish you the best of luck with HAL. Seems like a solid company. SLB as well. Some of the oilfield services companies sport really excellent fundamentals, especially in comparison to some of the large supermajors they’re there to serve.

    Cheers!

  46. DO,

    Yeah, I’ve rarely had the opportunity to buy stocks that are rated five stars by Morningstar. I think ABT was the last stock I really loaded up when it hit that level. And that turned out very well (would have been better had I just kept the stock).

    Yeah, I agree with you there in regards to diversification. Although, keep in mind that the weights/exposure will actually increase in terms of market pricing when/if that sector rebounds. As those stocks rally, their values soar and they become an even larger part of the portfolio. So that’s something I’m mindful of – I’m heavy on these stocks even with low prices. That said, it’s really more about dividend income exposure. Although, many of the energy stocks now contribute rather significantly there as well. But you just have to weigh those opportunities out and try to strike a balance. That balance just becomes harder the larger the portfolio gets. As my portfolio passes $300k and $400k, new purchases will make a somewhat small difference in terms of exposure, so I have to be careful as I go.

    Thanks for dropping by!

    Best regards.

  47. Rich,

    I’m using both accounts right now. These shares were purchased in the TradeKing account, though.

    I’m not sure what you mean there in regards to taxes and manual records, though. Brokerages are required by law to track your cost basis. So buying/selling doesn’t matter at all in regards to what account you’re doing it from. The wash-sale rule would apply regardless of which accounts you’re doing the buying and selling from. It seems some people are scared to buy stocks in more than one account like that somehow throws everything off. It basically adds zero difficulty.

    Hope that helps!

    Cheers.

  48. DD,

    The more Mr. Market hates a high-quality stock, the more I love it. 🙂

    Glad to be on the same page with you here. We’ll see how it turns out, but I’ve not seen anything from the company’s financial results that really scares me in any way. Like I mentioned, they’ve been around for a long, long time – and they’ve prospered through much larger drops than this. Can’t see why “this time is different”.

    Best wishes!

  49. John,

    Many oil stocks were up quite a bit yesterday. And now they’re down today. There doesn’t seem to be any correlation. But I can’t predict the future of oil prices (or anything else) any better than anyone else. I simply buy when high-quality equity appears to be fairly priced or less. Not much more to it than that. 🙂

    Take care!

  50. You seem to be buying it at below book value, and they seem to be well capitalized to ride out the down cycle. They seem to have added a significant amount of debt since 2010 ($4.1B currently vs. $.5B in 2010); it looks like the debt was used to finance recent acquisitions.

    The main issue which you’ve highlighted is sensitivity to capx, as the CEO warned of a downturn during the last quarterly release in 2015 (and possibly longer) due to customer capx budgets being slashed.

    This is definitely one to be patient with.

  51. Dan,

    Yeah, it’s not been all that often you could have bought NOV below book over the last decade. Pretty much just during the financial crisis, which happened to coincide with a major drop in oil prices.

    They’re obviously very sensitive to spending by their customers, as that’s how they earn their living. And their customers will continue to spend less if they feel this is a protracted problem (in addition to natural supply and demand concerns). So you’ve got some anticipation going on there, which can sometimes overcorrect itself into the territory of fear. People tend to overreact to things, both on the upside and downside. But I’m about as patient as they get. I’ve got another 40 years or so to wait it out. 🙂

    Thanks for dropping by!

    Best regards.

  52. Nice buy Jason!

    When I saw that you mentioned this in your tweet, I started looking at it heavily. I didn’t buy because I think the volatility might push it down a little more and save me a share or twos worth later on which is something that I am worried about with limited early funding.

    I just posted my newest buy as well in SO. Can you lend me your thoughts on this company? I am not really sure if it was good at it’s current valuation. I feel like I did good but I want to make sure that I did a good job when I bought into it. I am still learning so a second opinion would be nice.

    Keep up the good work.

  53. Another great post (as usual/expected) but what I find even more impressive about you is your relentless enthusiasm with which you reply to all comments. Makes your blog very special.

    Interesting choice you made here with NOV. Tempting, you make a strong case for dividend investing, here and elsewhere.

    Regarding taxes, your and my situation is totally different. First, I have to pay a withholding tax of 15% to the US; then, an additional 25% tax to my government. Combined, that means 36.25% lost on each dividend payment. Put another way, for each $100 you receive as dividend, I need to receive $157 to have the same spending power in the end. That is a big difference! Because (I think that) I do not have to pay a capital gains tax, this is probably the way to go for me.

    Already looking forward to our next post. Thanks.

  54. Ahh I was just wondering since Scottrade you will have a cost basis around $60-ish a share and Trade King is $45 a share do you keep track of it separately like combined cost basis in a spread sheet of $52/53 a share. I wasn’t sure if that added any complexity to taxes (but guess wouldn’t matter unless you sold)
    Thanks,
    Rich

  55. Brantley,

    You may very well be correct there. NOV could drop further. But it could just as well increase from here. No way to really tell. Timing stocks isn’t my game, and it’s something I recommend against. 🙂

    As far as your purchase goes, SO is a decent utility. Like I’ve mentioned before, I’m not a huge fan of utilities in general. And that’s due to a variety of concerns about the business model itself as well as changes occurring across the landscape. Specific to SO, I find their growth really lackluster over the last decade. Last I looked, they’ve basically not grown at all over the last decade, which is troubling. Cost overruns are another concern. I guess you just have to really decide what the yield is worth to you. If you’re okay with that 5% yield and not much growth, then it could certainly fit. But I wouldn’t expect much more than that. In addition, you only bought 10 shares. Not sure of your commission costs, but I’d be careful there if you’re paying more than a couple dollars per transaction.

    I like some utilities better than others, though. SO isn’t really my top choice. I like AVA, WEC, and ITC, however. I just see better fundamentals there.

    Cheers!

  56. Peter,

    Appreciate the kind words. Glad you’re enjoying the blog. I certainly try to make this an inviting place to share ideas and mutually inspire each other as we reach for our individual dreams. 🙂

    That tax situation is unfortunate. I could certainly make this strategy work with a different tax situation (dividends haven’t always been taxed so favorably here in the US), but it would certainly add a degree or two of difficulty. But there are a lot of ways to build wealth. Many roads lead to Rome. As long as you find that which works best for you and you stick with it, you should do well.

    Stay in touch!

    Take care.

  57. Congrats on the new purchase Jason!

    I’ve been debating on starting a position in either XOM or NOV. I don’t have any oil exposure yet, so this is probably a good time to start. I like both of them, but I think I’ll start with XOM since its a bit safer and this one piece of NOV makes me a bit nervous.

    42% of NOV is rig systems and I want to see their next earnings report to see how much more of their backlog was used up and if they were able to find any new business here. If they can stablize this part of the business, then this is a great opportunity, but I fear if the backlog is significantly reduced without new business added, the stock dropping, especially if analaysts then start questioning whether the dividend payment is safe. Hopefully it doesn’t come to that though and the mid 40’s are a floor for the shares.

  58. Wow! I appreciate the fast reply.
    I am with Fidelity and I understand that you are/were shopping around for a new brokerage so this might sway you. $8 commission per trade. So $.80 per share on this one. I don’t mind. I’ll more than make that back on the first 2 dividends per share.
    I think I bought more because it was a nice dividend and I trust the company to continue operating in the long term than on a fair value. I personally would rather stick to the traditional KO and WMT picks but those are a little too high priced for me while I am trying to focus on diversification.
    I’ll keep learning about fair value and figuring it out. I should be getting your book once I finish the one I am getting through now!
    Thanks again and keep at your blogging. I love coming into work and getting lost in it.

  59. Rich,

    Ahh, I gotcha. No, it doesn’t add any complexity. It’s just one position in the end. The cost basis is added up and the total market value is added up together. So that’s what you see when I publicly display my portfolio. Owning 5 shares of a company across 4 accounts or owning 20 shares in one account makes no difference at all. And when tax time rolls around, all of these forms are automatically uploaded and all the numbers are combined. Again, adds no difficulty at all.

    Hope that helps!

    Cheers.

  60. Peter,

    Yeah, we’ll see. I anticipate them running through the backlog for a while yet. Especially with no near-term catalyst or major change on the front of oil pricing/demand. But that’s what a backlog is for. It’s that margin of safety that you tap into if/when new orders dry up. They’ve faced much, much larger drops and more volatility than we’ve seen here over the last year. But oil stocks in general can be very volatile. I think that seems to have surprised some investors who are new to stocks and what not, but that’s just how they are.

    Thanks for stopping by. Best of luck as you continue to build out your portfolio. 🙂

    Cheers.

  61. It is certainly a hard period for all in the oil industry at present. The integrated oil majors have a better ride of it with the benefit of the combination of upstream/downstream income. However, for the picks and shovels and exploration firms it is rally tough.

    However, I think you’re right that they remain–often–compelling buys. After all, most realise such circumstances could be a possibility and make preparations for such. It doesn’t make the situation any less painful but certainly less dangerous!

    Good luck with this one, Jason! I am sure it will pay-off handsomely over the years!

  62. TDD,

    This is definitely a “pick-and-shovels” firm. I quite like those investments, when I can get my hands on them. 🙂

    We’ll see how it goes. NOV has faced much greater volatility than that which we see today. And they’ve come out stronger every time. I don’t see why this time is any different. I just hope they’re taking advantage of these prices and buying up stock!

    Thanks for stopping by. Hope all is well on your side of the pond.

    Best regards.

  63. Hello DM, do you have any thoughts about the companies that process and store oil and gas but don’t produce oil, such as Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP) and Plains All-American Pipeline (PAA)? Also the energy MLP Linn Energy (LINE) might be interesting. They are all down by a lot but probably have further to go. Do you have your eye on any of these?
    Thanks.

  64. Jason. Try to consider tax loss harvesting..you’ll save some tax as in the case of your NOV holdings. When tax time comes around ,determine your tax savings and let Uncle Sam buy some more shares for you

  65. Jan,

    I don’t really follow any of those specific stocks. I have some exposure to transportation and storage through OKE and KMI. But I generally prefer the general partners to the underlying limited partner investments due to the IDRs. So that’s where my money generally goes. I looked at LINE very briefly a while back and couldn’t understand all the lingo they were using regarding hedging and what not. I’ve heard great things about EPD in passing, but I’ve never really taken a good look myself. Again, I prefer the GPs.

    Cheers!

  66. Hey Jason,

    Since Petrobras cut their orders, what is it in the business of NOV that makes you still feel confident. That huge backlog cut seems ominous to me. Your thoughts?

  67. Looking for a new brokerage?
    With an account as large as Jason has you would qualify for free trades. I don’t want to advertise for a firm but I get all of my trades for free. With small purchases as you make it will help you buy more shares each trade.
    It’s a very large firm if you (Jason ) email me I will let you know who I use

  68. kingkang,

    I haven’t heard anything about a Petrobras orders cut that specifically had to do with NOV contracts. Do you have any links on that saying that contracts are definitely canceled?

    With or without that $3 billion or so of work, I’m in this for the next few decades. Everything else is just noise, in my view. Can you tell me what the backlog looked like the last time oil dropped? What was going on with NOV and its orders in 2008 and 2009? You probably don’t know because it’s in the rear view mirror now. People forget what happened yesterday. This, too, will be old news one day. People focus so heavily on today and totally lose sight of 10 years ago and 10 years from now. But that’s the scale I operate on.

    Cheers!

  69. Amegalo,

    I’m not interested in transferring assets around. I could transfer a healthy chunk over to MerillEdge and get free trades, but I’m not interested in that. If you know of a brokerage that’s been around for a while and offers a full, robust desktop platform with all stocks available (not Robinhood or Loyal3), then by all means share with the community. 🙂

    Cheers!

  70. Sorry I was referring to the $3.3B suspended contracts by Petrobras but this is definitely a long-term play. Kudos.

  71. Always nice to average down on a solid company that has been around for quite a while and with a current yield north of 4% it doesn’t hurt to get paid to wait. I just made a recent buy too adding to my DOV and averaging down. Fear and greed… you know what it’s all about.

  72. I don’t use Robinhood or Loyal 3, but I respect the Hell out of what they are attempting—and probably will do. If they gain support, soon, very soon, trades will cost .99 just like itunes. It’s bound to happen. Brokerages will realize that traffic is important (advertising), and investor cash reserves in wait make money for them in daily interest (that they won’t have to pass on). We could see it soon–as competition (especially for traders) will become center stage. “Investors” will get a near free ride (@.99) because of it. I see a Netflix style start. “For $7.99/mo you get “x” .99 trades” and then it will just be .99 trades w/ no monthly flat fee. Interest rates will need to be hiked first—but we will see it–I hope.

    As for SO, Brantley French (what kinda cool name is that?? It’s got Hollywood! all over it),: I just bought and agree wholeheartedly with DM. This is more of a 5.1% bond/stability play for me. I will hold forever (as I always do) and not expect much growth. It’s my only real utility other than T, which I consider a utility. But, SO is pretty dang safe and is a great portfolio stability play. I got a serious deal on this stock and am in the green already. My minimum purchase for any stock is $2500. I invested a pinch better with SO and bought 75 shares at dirt level knowing I wouldn’t be in the red for more than a day. True. Watch those dang fees! I’m still trying to catch air on HSY. Though, I could care less on HSY. I’m just too happy to be an owner of that delicious confectionary giant. Num.

  73. For what it’s worth, here’s the noise: NOV was supposed to supply equipment for 22 out of 29 Petrobras drilling ships and now it will supply equipment for just 7 of 15 ships. The total deal was worth 3.3 billion, so just do the math. However the only source who is consistently talking about this deal and its negative effects for NOV is a notorious shorter on Seeking Alpha. I’d rather wait on official news from NOV itself… and then I’m still long NOV anyway. It sucks on the short term, but surely they’ll bounce back.

  74. I don’t own NOV, but I have been adding energy stocks over the past eight months. If that makes me a little overweight in energy, so be it. I think it’s just a case of following Warren Buffett’s sound advice to be greedy when others are fearful. If buying an energy stock today took no courage and generated nothing but warm fuzzy feelings, we’d probably be paying too much!

  75. Warren Buffet actually is almost out of oil completely now. I think he still has a little bit (relatively speaking of course) of NOV still.

  76. Nice buy, Jason!

    The valuation is quite intriquing. I’d have to consider NOV a bit more. I already own a lot of XOM, so I don’t intend to put much more in oil stocks.

    I initiated a position in EMR today. It’s at a pretty good valuation and a dividend record to make most CEOs rather envious.

    Cheers!

    Jarmo

  77. I’m with you Jason, I really have higher than I need exposure to energy, but the long term play is just so tempting as it’s a finite resource and will rise sometime. I read an article on seeking alpha today from shell expecting oil prices to recover gradually by 2020. Only five years away, but such a “long” wait in the market.

    http://seekingalpha.com/news/2632695-shell-expects-oil-price-recovery-to-take-several-years?uprof=44#email_link

  78. Keith,

    Absolutely. The more fearful the market wants to be about a stock, the more greedy I become. 🙂

    Nice move averaging down on a high-quality stock over there. DOV’s dividend growth track record is mighty impressive.

    Thanks for stopping by.

    Cheers!

  79. divy,

    I’m with you. I hope the free or semi-free brokerages really catch on in a big way and force the hands of the bigger players. So far, not much has really happened there. But some of these services (especially Robinhood) are still really new. If Robinhood is still at it in five years or so, gets a phone number I can call, and develops a robust desktop platform, I’d definitely consider them. But it’s just not where I need it to be. Of course, I’ll be nearing the end of my asset accumulation phase in five years, so the timing might not be right for me. Future generations will have it even better than we currently do, which is one reason the future is so bright. 🙂

    Cheers!

  80. DDI,

    I’ve read a little bit here and there about it, but no word from the company. This is why I call this stuff noise. When you’ve got one or two people spreading rumors that haven’t been substantiated by a company, it’s just noise. Even if it were to come to fruition and NOV loses contracts permanently (not just delayed), we’re talking about a fraction of the business now and certainly over the long haul. It’d be a one-time hit to the company’s results, and I’m sure things will come back around down the line just like they always do. I’m not particularly concerned. 🙂

    Thanks for adding that!

    Best regards.

  81. Jim,

    I don’t really mind being overweight in one or two sectors, even if it’s over a long period of time. Investing is far from a perfect science. But I’m probably least enthusiastic about being overweight in this sector just due to my concerns about the long-term viability of some of the products and services. However, I think many of these companies will continue to do well at least over the next 20 years, and it’s just impossible to really look out past that. We don’t even know what’s going to happen tomorrow, so…

    But I’m with you on being greedy when others are fearful. There’s always a deal somewhere. Just have to make sure the merchandise isn’t marked down because of a defect. 🙂

    Keep it up!

    Best wishes.

  82. Jarmo,

    It’s definitely not a stock for everyone. It’s a bit risky over the near term, but I think the long-term prospects (next 10-20 years) are still quite exciting.

    Nice grab with EMR. One of my older holdings. I might buy one more tranche at some point here. I don’t really need a lot more of it, but you’re right in that the dividend record is incredible. Growth over the last decade has been somewhat lackluster, though.

    Thanks for stopping in!

    Best regards.

  83. DD,

    Yeah, I’ve heard just about every CEO from every major oil company come up with a different prediction. It seems that even those in the industry are just as helpless in being able to predict where oil’s going as the rest of us. If they all knew what was really going to happen, they all would have been predicting the drop last year. But nobody did that. 🙂

    All noise in the end. The best you can do is stick to the plan, buy quality, hold for the long haul, and ignore everyone and everything else.

    Thanks for stopping by!

    Best wishes.

  84. Really enjoy the blog! First time commenting…What are your thoughts regarding Helmerich & Payne?

  85. Sam,

    Thanks! Glad you’re enjoying the blog. I put my heart and soul into it. 🙂

    HP is the best driller, in my opinion. Fundamentally, just the best I’ve seen. However, I’m not a fan of drillers in general. It’s just not an industry that has really solid economics. It’s so tough to carve out an economic moat there because it’s basically commoditized. The competition is heavy, which weighs on pricing. And it’s super expensive to maintain a fleet. In addition, it’s heavily cyclical, which can destroy margins when there’s a downturn. Not a fan. If I were to own a driller, though, it’d be HP.

    Cheers!

  86. DM,

    You have been a big fan of this stock over the last year and based on your several purchase articles, I can’t blame you. I like how you continue to take advantage of the current market environment and average-down your investment. You liked the stock initially and as you pointed out, the performance is still strong given the tough economic environment. So throwing more money at it and building a larger position seems like a no brainer to me. HECK YEAH!

    Keep up the great work and keep on driving towards financial freedom!

    Bert

  87. Bert,

    I’ve honestly been shocked by how far and how fast it’s fallen. I guess I just can’t see how the business is worth half of what it was last summer, especially when it didn’t look all that expensive a year ago. Now, if it were overvalued by 20% or something crazy, I could see it. But it just doesn’t add up. But we’ll see. It’ll take a while to see how it shakes out, but I like my chances over the next decade or so. 🙂

    Thanks for dropping by. Let’s keep it going!

    Best wishes.

  88. Jason, I added to my EMR at 52.52. It’s making new 52 week low today. This is a Dividend Aristocrat trading at or below 15 PE and 3.6 divi yield is as high as it was at highest during Great Recession, and also highest level it’s been in last 20 yrs. seems like a no brainier. It’s doesn’t look like you have a full position yet. Just an idea.

  89. DD,

    I like the EMR idea. EMR was on my watch list some months back – maybe April. I passed on it, but I think I need to revisit that idea. One of my older positions and I think – as you point out – the valuation is pretty compelling here. You just don’t find a stock like EMR every day, and that yield is really attractive.

    Glad to be a fellow shareholder with you. I’ve bought a lot of stock this month. Not sure I have room for anything else, but we’ll see. 🙂

    Cheers!

  90. Thanks for sharing! I am looking to average down on RDS, their yield is insane right now!!! Have you considered averaging down on them at all during this time?

  91. jcc,

    Nice!

    I continue to think about that, but I remain concerned about the fact that most of their fundamentals are rather poor relative to their peers. The dividend is interesting in that FCF has only covered it in two out of the last six years.

    Thanks for stopping by.

    Best regards.

  92. Jason,

    Thanks for the response, I agree with you on the moat issues. I took a small position in them a while back, but have never had any plans to add to it, I just liked the opportunity to pick up a Dividend Champion at a discount. Keep writing!

    Sam

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