The World According to NOV (Version 2.0)
Pete Miller Jr., Chairman and CEO of National Oilwell Varco (NOV) addressed a meeting of the Houston Chapter of the American Petroleum Institute on Tuesday. In a previous post, I related my observations re: NOV’s world view and assumptions that drive their operating strategy. I also found NOV’s financial philosophy interesting, and if not contrarian, certainly unconventional.
Leverage-Debt is a four letter word at NOV. They are well aware of the adage “Leverage makes good times look better and bad times look worse”. However, they feel that the attendant risk in bad times far outweighs the upside in good times.
Liquidity-“Cash is King” at NOV. Miller quoted one of his professors at the Harvard Business School who said that no company ever went bankrupt if it had enough cash on hand to meet its obligations. While cash might not be the best return right now given low interest rates and robust equity markets, liquidity appears to be a corporate value.
Stock Buy Backs-make no sense at all to Miller. NOV’s position is if you are going to use cash, it should be to grow your company, not incent your shareholders to sell their stake in the enterprise.
Dividends-are regarded as a legitimate use of cash as they reward your shareholders for investing with you and maintaining their stake in your company.
Conclusion-While these perspectives might not be universally held in the investment community, it is hard to argue with NOV’s success. They have been so successful and aggressive in their acquisitions that in the oil patch NOV is also known as “no other vendor”.