ORCL Leaves A Lump Of Coal In Investors’ Stockings
The Dynamic Wealth Report
December 27, 2011
by Corey Williams, Editor
Last week investors were happily preparing for a long holiday weekend.
At the time, investors were celebrating a new ECB program to pump massive
amounts of liquidity into European banks. And investors were feeling
outright jolly about some of the best US housing data in months.
It looked as though Santa Claus would deliver the rally so many
investors had on their Christmas wish list. Then, the most unlikely of
companies played the Grinch…
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Tech giant Oracle (ORCL) missed analysts’ quarterly earnings estimates.
It was a stunning blow from a company that’s known for how well they
manage earnings. I can’t even remember the last time Oracle missed
earnings…
Shocked investors promptly put the entire tech industry on the chopping
block.
Here’s the thing… anyone selling tech right now is misguided.
You see, sellers are drawing broad conclusions about tech spending from
incomplete information. They think one bad quarter at ORCL foretells a
massive decrease in business tech spending.
However, this conclusion couldn’t be further from the truth.
First off, you can’t identify a trend in one quarter. This is a
disappointing quarter for ORCL… nothing more, nothing less.
In fact, businesses continued spending more money on technology. They
just didn’t accelerate spending as fast as some analysts were expecting.
But sales still increased at ORCL last quarter.
What’s more, the most damning evidence many so-called experts pointed to
was weaker than expected sales of new software licenses. Analysts were
expecting a double-digit gain and they only increased 2% from the same
time last year.
Ok, 2% isn’t great. But it’s still a gain. I just don’t see how one
quarter of slower growth is an indication spending in the entire tech
industry is starting to decline.
And here’s the kicker…
The only reason Oracle’s sales came up short was a few big deals were
delayed. And there’s still a chance those deals end up closing this
quarter.
Think about it, who can blame those businesses for delaying their
purchases. Who in their right mind wasn’t a little hesitant to shell out
huge sums of money?
Have you seen what’s been happening in Europe? For much of the last
quarter, it looked like the European debt crisis was about to blow up the
European Union and sink the Euro currency!
I don’t know about you, but that doesn’t sound like the backdrop of an
environment where companies want to spend money. The added uncertainty
from Europe almost certainly played a role in the decision to delay
capital spending.
Yet, even with the European headwinds, ORCL grew revenue and earnings.
No doubt about it, this is a classic market overreaction.
Don’t forget, ORCL has a strong balance sheet, pays a dividend, and is
in the midst of a $5 billion stock repurchase program. So, management’s
clearly committed to delivering shareholder value.
What’s more, ORCL is just starting to expand their presence into cloud
computing... an area that’s growing four times faster than overall tech
spending. And they’re gearing up to grab an even bigger chunk of money
spent on cloud services.
Oracle President, Mark Hurd said, “we have expanded our worldwide sales
capacity by adding over 1,700 sales professionals in the first half of
this fiscal year. We believe that this increase in our field
organization combined with innovative new products like Fusion Cloud ERP
and Cloud CRM will enable solid organic growth in the second half of
this year.”
Clearly, ORCL’s quarterly earnings were disappointing. But it’s not the
end of business tech spending many are making it out to be.
I’ll even go as far as calling ORCL a screaming buy at these prices.
We could see ORCL trade even lower in the short run. Try scaling into a
position. Start with buying 25% of the total position size you’d like to
own. If ORCL falls below $25, buy more.
ORCL will recover from this misstep and so will their stock price. We’ll
likely look back at the lump of coal ORCL gave of us this Christmas as
the best gift a Grinch has ever given.
***Editor's Note*** This Oracle trade is a perfect
example of how you can profit by combining market experience and
technology industry knowledge. Now, if you want to learn more about
making money from tech stocks,
check out this free report Corey recently
published…
Good Investing,
Corey Williams
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