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Drill Baby Drill: A Rebound Story – National-Oilwell Varco, Inc. (NOV), Halliburton Company (HAL)

National-Oilwell Varco, Inc. (NYSE:NOV) has seen better days. This stock is down around 20% in the last year and over 10% in the last 5 days. However, their business is stronger than ever. This company provides oil well services and equipment to the oil and gas industry. They recently reported earnings of $1.49 per share, beating the $1.44 estimate set by analysts. National Oilwell Varco reported revenue up 33.48% from the prior year, including a 16.37% increase in net income. Their 2012 earnings came in at $5.91 per share, which is the most the company has ever earned in a single year, up 24% from 2011.  All of this put together should cause a spike in the stock, right? Well, sometimes the market reacts differently.

National-Oilwell Varco, Inc. (NYSE:NOV)In 2012, National Oilwell Varco acquired 17 companies, most notably Robbins & Myers, Inc. (NYSE:RBN) for $2.5 billion. Robbins & Myers provide engineered equipment used in the energy, industrial, chemical, and pharmaceutical industries. This addition to their portfolio makes them more technologically advanced, as well as provides yet another revenue stream. Robbins & Myers has a trailing twelve months revenue of $1.05 billion. The continued acquisitions are a positive for the company, as it shows management is continually improving and acquiring in spaces where they need more technology.

I see acquisitions as a way for a company to utilize its free cash flow and cash on hand to increase revenue streams in order to return more value to investors. Companies like Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) who continually hoard cash are not companies I wish to invest in. I believe this will help them become a full service provider to oil and gas companies, and become a one-stop-shop to get resources out of the ground. The more National Oilwell Varco can provide to its customers the better.

Currently, National Oilwell Varco is trading at just 11.2 times earnings. Two companies similar to this are Halliburton Company (NYSE:HAL) and Baker Hughes Incorporated (NYSE:BHI). To compare, these two companies are trading at multiples of 14.7 and 15.5, respectively. All of these are strong ratios compared to the industry average of 26.58. The chart below shows a comparison of the three’s current price to earnings and forward price to earnings. As you can see, each of them are growing their earnings, which is a good sign for the industry.