National Oilwell shares signal rising demand

A tightening market for U.S. oil rigs highlights supplier National Oilwell Varco.

Signal analysis

A tightening market for U.S. oil rigs highlights supplier National Oilwell Varco (NOV). On Friday, NOV was among a handful of S&P 500 stocks triggering key bullish technical signals whilst meeting another condition for potential gains. The stock was above its 21-day exponential moving average, a pillar for traders looking to time entries. NOV also showed positive on-balance breakout volume. The model relies on the notion that rising volume without big price moves will eventually bring rapid gains, or vice versa. In the context of a stock rising towards its 200-week moving average, bullish signals may point to significant gains.

Small and fragile

To be sure, like many a mid-sized oil company, $13bn National Oilwell Varco has a chequered recent past, mostly due to the oil price collapse of 2014-16. Earlier this month the group reported a 16% revenue rise to $1.97bn in the fourth quarter, above forecasts, but it also lost 4 cents a share. Other signs of fragility include spending that continues to surpass income from operations, and a $6bn total debt, double that of giant Halliburton. One positive NOV fundamental though is credit. National Oilwell’s BBB+ from S&P matches the agency’s rating on Halliburton, and Schlumberger, another industry leader.

Rising tide

It helps explain investors’ positive response to NOV’s recent offer to buy a drill manufacturer for $63m. The move follows early February news that its order book was worth almost $3bn by end-2017. The backlog represents a tide of demand that’s lifting most boats in the industry to more than twice book value, on average. NOV shares were among the few still slightly below book value though, a potential opportunity—with evident risks. Still, order flow and momentum are one argument for continued medium term gains for NOV shares even after a 20% rise since last August.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.