In the following video, Fool analysts Austin Smith and Jim Mueller discuss some of the risks facing National Oilwell Varco.
Although NOV is among the safest bets in the energy industry, it isn't without its risks, and investors should know what those are. Jim has identified three:
- Parts failure: When parts fail on an oil rig, as a blowout preventer did in the BP spill, that could lead to both financial and reputational damage to the maker. NOV was not the maker in that case but faces the risk nonetheless.
- Losing a big customer: NOV had one customer that provided about 12% of its revenue in 2011. Investors want to see a company like NOV with a diverse customer base.
- Oversupply: If drillers become too aggressive in building out their fleets too fast, orders for NOV could start to dry up, since fewer of its products would be needed.
Austin Smith owns shares of National Oilwell Varco and Seadrill. Jim Mueller owns shares of BP, National Oilwell Varco, Transocean, and Seadrill. The Motley Fool owns shares of Transocean and Seadrill. Motley Fool newsletter services recommend National Oilwell Varco and Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.