NOV's 25% Run: A Catalyst for a Sector Recovery or a Value Trap?

The immediate catalyst is a significant, concentrated bet. In the fourth quarter, London-based Oldfield Partners increased its stake in NOV by 276,961 shares, an estimated $4.11 million trade. This move brought the fund's position to 22.4% of its 13F reportable assets, making NOV its single largest holding. The question for investors is whether this signals a mispricing or a fundamental shift in the fund's view of the company's value.

This bet comes against a backdrop of a strong stock run. NOV shares are up 24.8% over the past year, outperforming the broader market. That rally has been driven by a broader recovery in the oilfield services sector, where NOV operates. The fund's move suggests it sees further upside, potentially viewing the stock as still undervalued relative to its operational momentum and sector tailwinds.

Yet, the context is one of volatility and uncertainty. The oil and gas industry faces a complex landscape in 2026, with shifts in US energy and trade policies expected to drive on-the-ground changes. While companies are showing resilience, they are navigating tighter margins and disciplined capital allocation. In this environment, a concentrated bet like Oldfield's is a clear signal. It implies the fund sees durability in NOV's business model-supported by a strong backlog and cash generation-through the cycle, positioning it to benefit from an offshore upcycle while returning capital to shareholders.

The Mechanics: Backlog and Bookings Signal Demand

The core operational catalyst is clear: NOV's third-quarter bookings of $951 million created a book-to-bill ratio of 141%. This means the company booked more new orders than it shipped, a strong signal of near-term demand. More importantly, that backlog for capital equipment orders now stands at $4.56 billion. That is the key indicator for future revenue visibility, providing a multi-quarter runway as those orders are fulfilled.

This operational strength stands in stark contrast to the financial performance in the same quarter. Despite the robust order intake, NOV reported a revenue decline of one percent year-over-year. More strikingly, net income plunged 68 percent to $42 million. The company attributes this to a less favorable sales mix, tariffs, and inflationary pressures, which hit profitability harder than revenue.

The bottom line is a classic tension between future promise and present pressure. The backlog and bookings data suggest the offshore upcycle is gaining momentum, supporting the fund's concentrated bet. Yet the financials show that current execution is being squeezed by cost headwinds. The setup hinges on whether NOV can convert that $4.56 billion backlog into profit without further margin erosion. For now, the operational catalyst is strong, but the financial mechanics are under strain.

The Valuation and Risk Setup

The financial picture here is one of stark contrast. On one side, NOV generated a robust $352 million in cash flow from operations last quarter, demonstrating strong operational execution. The company used that cash to return $108 million to shareholders via buybacks and dividends, a clear signal of financial strength. On the other side, the bottom line is under severe pressure. Operating profit fell 45% to $107 million, and net income plunged 68%. The market is clearly pricing in the future-specifically the conversion of its massive backlog-while the present is being squeezed by cost headwinds.

This tension defines the current valuation setup. The stock's 25% annual gain suggests the market is betting on a sustained recovery, with the fund's concentrated bet aligning with that view. The real risk is a slowdown in the momentum that created that backlog. The company's own outlook notes that near-term industry fundamentals remain challenged, and inflationary pressures are prompting project reassessments. If new bookings falter or if the offshore upcycle loses steam, the path from backlog to profit becomes much less certain.

The other key risk is a funding squeeze. While NOV is generating cash now, its ability to maintain that level of shareholder returns and invest in growth hinges on holding margins. With operating profit already down sharply, any further margin erosion would directly threaten free cash flow. The company has shown it can manage costs and working capital, but the environment is volatile. As shifts in US energy and trade policies are expected to drive on-the-ground changes in 2026, the stability of the cash flow engine could be tested.

The bottom line is a high-stakes bet on durability. The valuation appears to reward the operational catalyst-the backlog and cash generation-while discounting the near-term profit pressure. For the setup to work, NOV must navigate the policy and cost headwinds to convert its book-to-bill ratio into the bottom-line growth the stock is now priced for. Any stumble in that execution would quickly reset expectations.

Catalysts and Watchpoints

The fund's concentrated bet hinges on a few near-term events. The next earnings report is the most immediate test. Investors must see sustained improvement in operating margins, which fell 45% last quarter. More broadly, the company needs to demonstrate a clear path to its $3.95 per share dividend target, a key return of capital metric. Any deviation from that plan would signal the cash flow engine is under greater strain than expected.

Beyond the numbers, watch the operational metrics that created the backlog. The book-to-bill ratio of 141% is a strong signal, but durability matters. The next few quarters will show if new bookings can maintain that momentum or if the current strength is a one-time surge. The conversion of the $4.56 billion backlog into revenue and, critically, profit, will be the ultimate validation of the offshore upcycle thesis.

A key external risk is policy uncertainty. As shifts in US energy and trade policies are expected to drive on-the-ground changes in 2026, they could stall final investment decisions for offshore projects. This would directly threaten the demand pipeline that supports NOV's backlog. The company's own outlook notes that inflationary pressures are prompting reassessments of both energy and industrial projects. If policy-driven investment hesitates, it could slow the very upcycle the stock is priced for.

The bottom line is a watchlist of three things: margin recovery in the next report, sustained order flow, and a stable policy environment. Confirm any one of these, and the fund's bet looks justified. A stumble in any could quickly reset the trajectory.