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.

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