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Feb. 2, 2016, 5:44 p.m. EST

10 oil companies that will thrive as crude prices rebound

Companies with low debt, such as National Oilwell Varco, will be able to scoop up rivals and grab market share

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By Philip van Doorn, MarketWatch


Dado Galdieri/Bloomberg
Because it has low debt, National Oilwell Varco will reap the benefits of rising oil prices more than its competitors will.

If you ignore the daily headlines about the beleaguered energy sector, invest in companies with low debt and wait for the inevitable rebound in oil prices, you could eventually make a lot of money.

Oil news has been grim, as analysts rush to lower their crude-price predictions week in and week out. Wolfe Research, in a shocking report, is expecting as many as a third of U.S. oil and natural gas producers to go bankrupt.

Read: Saudis making a ‘trillion-dollar mistake,’ says U.S. oil billionaire

Oil has already hit its lowest level in more than 12 years , and the drop over the past 18 months has been breathtaking. Investment banks expect crude oil prices to head well below $30. As recently as July 2014, prices topped $100 a barrel.

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Why Global Demand for Oil Is Slowing Down

Recent surging global supply has led oil prices to drop to a 12-year low, and oil companies are cutting spending and production. The WSJ's Jenny Hsu explains how China plays a role in all of this. Photo: CCTV

In an interview on Jan. 8, Bill Mann, chief investment officer of Motley Fool Asset Management, gave an example of an oilfield services and equipment company that’s well-positioned to take advantage of the turmoil in the energy and materials industries, and bounce back beautifully when oil prices recover.

“In the materials sector and oil services, there are companies that have been thrown out with the bath water, including National Oilwell Varco /zigman2/quotes/208758290/composite NOV -2.71% ,” Mann said. He called the company ”spectacular,” with a “very conservative capital structure in a disaster of a market right now.”

“The last 18 months have been the worst in history for the price of Brent crude oil , and those things tend to reverse in time,” he said.

National Oilwell Varco’s ratio of long-term debt to equity was 15.3% as of Sept. 30, according to FactSet. That’s the lowest among the six companies in the oilfield services/equipment subesctor of the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.84% , according to FactSet.

Having low debt is crucial for companies that wish to scoop up competitors or assets during a wave of bankruptcies.

Here’s how National Oilwell Varco’s year-end debt-to-equity ratio compared with the five other companies included in the S&P 500 oilfield services/equipment subsector:

Company Ticker Long-term debt/ equity - Sept. 30 Average return on equity - five years through September 2015 Total return - 5 years through Jan. 8
National Oilwell Varco Inc. /zigman2/quotes/208758290/composite NOV 15.3% 10.4% -44%
Baker Hughes Inc. 22.2% 6.1% -22%
Schlumberger NV /zigman2/quotes/201012972/composite SLB 35.2% 12.9% -13%
Halliburton Co. /zigman2/quotes/210488727/composite HAL 48.3% 13.0% -10%
Cameron International Corp. 67.7% 8.7% 23%
FMC Technologies Inc. /zigman2/quotes/207530935/composite FTI 71.6% 17.7% -40%
Source: FactSet

To be sure, a relatively high level of debt doesn’t mean a company has been a poor long-term performer, as you can see from the five-year average returns on equity and total return figures above. The idea is that a company with low debt can take advantage of the unusual market turmoil.

Read: Barclays is now the most bearish on oil outlook

When discussing market conditions and strategy during the company’s third-quarter conference call in October, National Oilwell Varco CEO Clay Williams emphasized the company’s cost-cutting efforts, as well as the opportunity for expansion ahead of the oil-price recovery that eventually “will come.”

/zigman2/quotes/208758290/composite
US : U.S.: NYSE
$ 11.86
-0.33 -2.71%
Volume: 3.66M
Dec. 3, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
1.69%
Market Cap
$4.76 billion
Rev. per Employee
$219,789
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,538.43
-38.67 -0.84%
Volume: 2.71B
Dec. 3, 2021 5:35p
loading...
/zigman2/quotes/208758290/composite
US : U.S.: NYSE
$ 11.86
-0.33 -2.71%
Volume: 3.66M
Dec. 3, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
1.69%
Market Cap
$4.76 billion
Rev. per Employee
$219,789
loading...
/zigman2/quotes/201012972/composite
US : U.S.: NYSE
$ 29.24
-0.08 -0.27%
Volume: 9.82M
Dec. 3, 2021 4:00p
P/E Ratio
25.09
Dividend Yield
1.71%
Market Cap
$41.13 billion
Rev. per Employee
$274,430
loading...
/zigman2/quotes/210488727/composite
US : U.S.: NYSE
$ 22.00
-0.02 -0.09%
Volume: 9.16M
Dec. 3, 2021 4:00p
P/E Ratio
49.47
Dividend Yield
0.82%
Market Cap
$19.71 billion
Rev. per Employee
$361,125
loading...
/zigman2/quotes/207530935/composite
US : U.S.: NYSE
$ 5.93
+0.04 +0.68%
Volume: 5.25M
Dec. 3, 2021 4:00p
P/E Ratio
20.68
Dividend Yield
2.19%
Market Cap
$2.65 billion
Rev. per Employee
$374,149
loading...
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