No Reason For National Oilwell Varco's Stagnant Stock

I've been long National Oilwell Varco (NOV) for a while now, buying on dips while watching earnings grow, margins expand, and the backlog grow. Management has visualized future trends (floaters to jack-ups, horizontal drilling, international demand) and has done an amazing job capitalizing on them.

So why then has the stock price been stagnant as of late? I understand there is a lot of short interest in the stock; it was recently listed as one of the biggest percentage changes in short interest in the last three months. Still, anyone who saw the earnings that were released on Wednesday, and listened to a great conference call has to see that they are still experiencing very positive growth (see conference call transcript). However, I saw a headline the day of their earnings report, when they were down about 5%, saying "NOV reports X% increase in profits, shares down on N. America outlook"....huh?

I understand that they said they have seen some cutback in spending in North America, and that Canada is still turning around, but it seems that every investor out there missed the most important part of the conference call. That their $8 BILLION backlog is 89% international and 88% offshore, the two places where they said they are seeing a lot of positive current and future demand. They also said that while close to the same as North America, their margins are slightly better internationally.

With a very positive earnings report relative to the other players in its sector, I think NOV is being dragged down with the likes of Schlumberger (SLB) and Smith International (SII) for no reason. I know markets are irrational, but literacy is all that's required to read an outstanding conference call transcript and know that this company is not a leader in its field by chance. What is the Street seeing that I'm not?

Disclosure: Author has a long position in NOV

Comments

[CrossProfit]

Stiffer international competition (squeezing margins) ahead.

[David Barsan]

I would acknowledge there is more competition when you go international, but I think it was Clay in the CC that spoke about the slightly better international margins and said he thought they could be maintained. International opportunities are growing and expanding all the time, in Asia, in Russia, in South America, especially with the national oil companies wanting to set up offshore for themselves. What markets and what competition are you referring to?

My main point was still the positioning of the backlog, and that they are setting themselves up to benefit from the areas where there is strong growth right now, not just wading through a slow N. American market and biding their time.

[CrossProfit]

You can start your research here;

www.livemint.com/2007/...

"Bhel plans to enter offshore rig business"
"However, for Bhel, the timing of bringing the rigs to the market will be critical because there are a substantial number of rigs being constructed worldwide, particularly in China,”

and here (not so informative)

www.fool.com/investing...

"Other worries surround the Indian market, where indigenous entrants are undercutting the international players' bids."

[pprimo]

you are kidding right?

[CrossProfit]

Pprimo,

Just because you know something, don't assume that everyone else shares the same knowledge. This is the primary purpose of the SA community. Sharing knowledge and ideas and posting a short helpful comment every now and then goes a long way.

What is obvious to you and others may not be obvious to all investors. No-one is kidding when it comes to real money. David Barsan took the time to write an article and shared his thoughts with us. The least we can do is reciprocate.
.
We apologize if we misunderstood the meaning of your comment.

CrossProfit

[pprimo]

you are kidding right?