Watch Out: Barbarians At The Gate For National Oilwell Varco (NOV)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified National Oilwell Varco ( NOV) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified National Oilwell Varco as such a stock due to the following factors:

  • NOV has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $339.0 million.
  • NOV has traded 2.6 million shares today.
  • NOV traded in a range 209.5% of the normal price range with a price range of $2.40.
  • NOV traded above its daily resistance level (quality: 7 days, meaning that the stock is crossing a resistance level set by the last 7 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on NOV:

National Oilwell Varco, Inc. provides equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry worldwide. The stock currently has a dividend yield of 1.4%. NOV has a PE ratio of 13.4. Currently there are 12 analysts that rate National Oilwell Varco a buy, 1 analyst rates it a sell, and 5 rate it a hold.

The average volume for National Oilwell Varco has been 3.0 million shares per day over the past 30 days. National Oilwell Varco has a market cap of $31.3 billion and is part of the basic materials sector and energy industry. The stock has a beta of 2.14 and a short float of 1.4% with 1.35 days to cover. Shares are down 7.4% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates National Oilwell Varco as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.3%. Since the same quarter one year prior, revenues slightly increased by 6.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • NOV's debt-to-equity ratio is very low at 0.17 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 1.19, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has significantly increased by 636.49% to $1,009.00 million when compared to the same quarter last year. In addition, NATIONAL OILWELL VARCO INC has also vastly surpassed the industry average cash flow growth rate of -71.33%.
  • NATIONAL OILWELL VARCO INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, NATIONAL OILWELL VARCO INC increased its bottom line by earning $5.83 versus $4.69 in the prior year. For the next year, the market is expecting a contraction of 8.1% in earnings ($5.36 versus $5.83).

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