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3 Reasons Cameron International Corp.'s Stock Could Fall

Carl Richards said it best:

Earlier this week, I wrote this article highlighting three things that could lead to Cameron International 's stock continuing to rise. However, as with any investment, it's worth taking the time to look at potential risks as well. Don't get me wrong -- the long-term trends in oil and gas demand and production, and the expected expansion of production in Cameron's biggest markets, look great, but that doesn't mean the risks should be ignored.

Let's look at the three biggest risks to Cameron's oil and gas services business that could force the stock down.

1. Geopolitical risk

Source: OneSubsea

OneSubsea, a joint venture with fellow oil-field services company Schlumberger , is one of the bright spots for Cameron's long-term future. While the size and scope of the projects that OneSubsea targets will lead to tremendous opportunities, it could also lead to disappointing results from one quarter to the next. OneSubsea's contribution to the company's backlog grew by $1.1 billion from the end of the first quarter to the second, but there will be periods in which award activity swings the other way, due to the size of these projects.

The fully integrated solution that OneSubsea can offer, largely due to Schlumberger's contribution, should lead to strong returns, but the lumpiness could lead to short-term softness in the stock price.

3. Risk is what you don't see coming

CAM Chart

CAM data by YCharts .

A 25% drop in the share price is nothing against the loss of livelihood to tens of thousands of people, the environmental harm, and the deaths of the 11 workers. I never want to trivialize such matters. However, a completely unforeseen -- unforeseeable -- event cost investors nearly $3 billion in a couple weeks' time. By July, shares would be down 32% and Cameron would face hundreds of potential lawsuits.

In the long run, Cameron would be cleared of all liability, as it was ruled that the failure of the blowout preventer was due to poor maintenance and upkeep on the part of Cameron's customers -- BP and Transocean . However, it wasn't until April 2013, after hundreds of millions of dollars in legal fees and a settlement with BP, that the courts cleared Cameron of liability.

Remember the long view

As I highlighted in the bull case argument, Cameron's long-term opportunities are great, but it must execute for those opportunities to pay off. Furthermore, it can't control everything, and the three risks cited above are all largely out of Cameron's hands. It's these unknowable, uncontrollable complications that we must consider when building a portfolio.

To paraphrase Warren Buffett, diversification is protection against what you can't know. Keep that in mind when deciding how much -- if any -- of Cameron International's risk you are comfortable being exposed to, and invest accordingly.

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The article 3 Reasons Cameron International Corp.'s Stock Could Fall originally appeared on Fool.com.

Jason Hall has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not 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 .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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