This first chart of NOV, above, shows at least two things: the relentless and deep decline in the price of NOV and the building bullish divergence from the momentum indicator. Momentum is basic math: today's price minus the price X days, or weeks, ago. If today's price is lower than X days ago we have negative readings. If it's higher than X days ago, we have positive readings. Momentum readings tend to peak before price highs and bottom before lows. The momentum readings on NOV have been making higher lows since last October, telling us that each decline in the price of NOV has been slower than the previous decline. Before a downtrend is broken, the rate of decline in prices first slows.
This longer-term chart of NOV, above, tells the same story on a different time frame. In the lower panel, we can see momentum is making a higher low vs. the lower low in price this year.
The last piece of the puzzle is this next chart, below.
The decline in NOV has been hard, but when one steps back and looks at more history, chart above, we see prices have just retested the highs of late 2009 and early 2010. One can certainly wait for more evidence, but I have added NOV to my shopping list of stocks that could outperform in the fourth quarter.
Separately, TheStreet Ratings team rates NATIONAL OILWELL VARCO INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate NATIONAL OILWELL VARCO INC (NOV) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- NOV's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.06, which illustrates the ability to avoid short-term cash problems.
- NOV, with its decline in revenue, slightly underperformed the industry average of 22.3%. Since the same quarter one year prior, revenues fell by 25.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Net operating cash flow has significantly decreased to $194.00 million or 77.72% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, NATIONAL OILWELL VARCO INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: NOV