National-Oilwell Varco, Inc. (NOV): The “Black Gold” Rush

Tesoro Corporation (NYSE:TSO) is an $8 billion dollar company based in Texas.  It is one of the largest independent oil refining and marketing companies in the US.  Tesoro is a leading refiner in the western states and has facilities in Washington, California, and Utah. Concentrating its presence in the west has helped Tesoro lower costs, increase efficiency, and build a stronghold in California where it currently commands 25% of the state’s refining capacity.  That’s important because California is a huge market that offers higher margins due to the need for special petroleum blends. Financially, I think Tesoro seems the least attractive among the companies mentioned so far–particularly in terms of debt, liquidity, and RoA.  That being said, Tesoro still looks superior relative to its peers across a wide range of measures.  This has been reflected in its stock price, which is up by more than 100% over the past year. That kind of a rally could certainly be indicative of a short-term pull back in price.

As with most oil and gas investments, these stocks are cyclical, sensitive to economic conditions, and can be quite volatile.  Combined with the usual risks and challenges associated with stock picking (including the high likelihood of just being plain wrong), making good picks takes time and effort.  If the extra work that comes with individual security selection doesn’t sound appealing (or sensible), then funds like ETFs may be a good option.

For example, the Energy Select Sector SPDR is one of the most popular energy ETFs.  It seeks to track the broad energy sector and holds 45 companies spread across the oil, consumable fuels, and energy equipment / services industries.  The largest holdings include Exxon and Chevron.  Another choice is the iShares Dow Jones US Oil Equipment & Services Index ETF.  It provides more targeted exposure and holds 48 companies all focused on the oil equipment & services industry.  The largest holdings include Schlumberger and Halliburton.

Regardless of the means, prudent investors should take positions in moderation as part of properly diversified portfolios appropriate for their needs, and of course, only at their own risk.

The article The “Black Gold” Rush originally appeared on Fool.com.

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