Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Undervalued
Investing Idea: Oracle (ORCL) |
Published: April 11, 2006
Oracle
(ORCL)
Sector = Technology
Industry = Application Software
Market Cap. = $71 billion
Enterprise Value = $70 billion
2005 Revenues = $11.8 billion
2004 Gross Profit = $9.1 billion
2004 Revenue Growth = +16.2%
Insider Ownership = 23.5%
Institutional Ownership = 46.2%
Insider Activity (ttm) = Neutral
Enterprise Value/EBITDA = 13.0 |
The world's second largest
software developer, Oracle (ORCL) specializes in database management
tools. The firm also offers a suite of applications software, which is
designed to help large organizations effectively manage and automate
their business operations. Among other uses, Oracle's application
products provide valuable business intelligence in key areas ranging
from accounting to human resources to supply chain planning.
Many of the companies we typically profile in our premium value
investing newsletter -- Margin-of-Safety
Investing -- are
small firms that are still largely undiscovered by Wall Street. Given
the lack of efficiency in the small and micro-cap markets, there is a
wider pool of quality, undervalued candidates in this overlooked corner
of the market. However, sometimes even the most scrutinized mega-cap
company can become underpriced in the face of pessimism and uncertainty.
Such is the case at Oracle, which has been out of favor with most
technology investors for the past several years. There are several
often-cited reasons to explain the stock’s lagging performance of
late, most notably: a tough competitive landscape, a slowdown in the
company's core database market, and integration risks related to its
recent acquisitions.
While such issues do raise questions that are worth examining, long-term
investors have little reason to be alarmed. For the most part, these
concerns are overblown. In addition, they're more than offset
by a number of positive factors.
Oracle is one of those rare companies that possess both growth and value
attributes. Over the next year, the company is expected to post solid
top and bottom-line gains of +19% and +17%, respectively. Yet despite
these projections, the shares are trading at just 17 times this year’s
earnings -- rock-bottom for a software company. Not surprisingly, the
stock is a top holding among many of the nation's largest
growth-oriented mutual funds, as well as a growing number of leading
value funds.
In the recently completed third quarter, Oracle delivered strong
adjusted earnings growth of +21%, with revenues rising +18% to a record
$3.5 billion. Revenues generated from the sale of new software licenses
(which represent one-third of total revenues) jumped +16% to $1.1
billion for the quarter. This impressive figure bodes well for the
future, as new licenses typically lead to a recurring stream of
high-margin product service and support sales down the road.
Although the performance of Oracle's core database business was slightly
weaker than expected, demand for its applications software was robust.
Sales were particularly strong in Europe -- the backyard of rival SAP --
rising +119% for the period. Currently, Oracle is the number two player
in this growing market (with a 10% market share), and going forward it
should have opportunities to chip away at leader SAP in the years ahead.
To be sure, much of Oracle's growth is attributable to the company's
recent $20 billion shopping spree. Oracle completed the $11 billion
acquisition of former rival PeopleSoft in January 2005, and since then
the firm has also closed mergers with Siebel and several smaller
software makers.
Though Oracle has been weighed down by lingering concerns that the
company will have trouble digesting these purchases, management has a
successful track record with respect to past integrations. There have
been no major complications thus far, and fears that customer retention
might suffer appear to be unfounded, as renewal rates remain quite high.
Ultimately, these recent acquisitions could prove to be a key growth
driver for Oracle. By boosting the company's standing in the
applications software space, they will power the firm's growth in the
years ahead -- even as its core database market continues to mature. Going
forward, CEO Larry Ellison has forecast healthy double-digit growth
rates for the foreseeable future.
Though the strongest growth days for database software may be in the
past, Oracle still has an established base of roughly 230,000 customers,
and this client base throws off prodigious amounts of cash. Going
forward, most of these accounts should remain loyal, especially
considering the hefty expenses and potential business disruption
involved in switching to a new vendor.
Though merger-related concerns continue to overhang the shares, the
benefits of the firm's recent acquisitions will eventually shine
through. In the meantime, Oracle should continue to grow -- both
organically and via additional acquisitions. And as revenues continue to
pour in, much of it will be quickly converted into cash flow. Currently,
the company churns out more than a quarter of free cash flow for every
dollar of revenues taken in.
With all of the above factors in mind, long-term investors might want to
take advantage of this window of opportunity to pick up shares of this
highly profitable, global powerhouse at a compelling price.
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Important Note: The above article
was merely a small excerpt from a recent issue we sent to subscribers of
our premium value investing service -- Half-Priced
Stocks. The mission of Half-Priced
Stocks is to help
our readers identify securities that are trading at the steepest
discount to their intrinsic net worth. In some cases this discount can
reach up to 50% or more, giving savvy value investors the chance to
purchase quality stocks for just pennies on the dollar. To receive your copy of our most recent issue of
Half-Priced
Stocks, as well as other guidance similar to this twice per
month, you'll need to subscribe to this publication. To learn more,
please visit:
https://web.streetauthority.com/subscribe-hps.asp
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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