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Subject:  Re: PDS - a sell? Date:  4/25/2013  2:35 PM
Author:  LTInvestorJim Number:  110 of 132

I like NOV, and my position there is larger than my one for PDS, but I feel the companies are quite different. If I only could pick one, it would be NOV, but PDS is a very different business and performs a different role in one's portfolio.

NOV is basically a technology company. They build rigs and sell and service them. They are leaders in the field of drilling technology. PDS is a contract drilling company. NOV is a big company -- ten times bigger than PDS. They also are more levered to offshore drilling than onshore, and more to global activity than just North America. PDS has a few rigs in other places like Central Asia, but is mainly N.A. So these stocks might both be affected by market psychology around energy prices, but NOV is going to be tied to the capital investment cycles of energy companies, and PDS will be tied to the number of holes being put in the ground in N.A. NOV will tend to be a more conservative investment -- big and geographically diversified. PDS will be more volatile, responding even to things like the weather in Canada and the politics of pipelines.

Last quarter, the operating margin for PDS was 16.4% (an increase YOY of 890 basis points) and the operating margin for NOV was 16.7%. So I don't really understand your concern there. An important point is that PDS has been using the downturn to invest heavily in increasing their future margins. They are retiring their Tier and Tier 3 rigs and buying new Tier 1 rigs, which command higher prices from their customers. PDS margins are on an upswing. NOV margins declined in the most recent quarter.

So yeah, in a sense, NOV is better because it is safer. It has different characteristics as an investment, though.

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