5 Reasons to Buy Oracle (ORCL) Stock

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Just about every tech investor has either bought, or at least kept close tabs on, the 800-lb. gorilla of the business software space — Oracle (ORCL).  The firm, led by the flamboyant and über high-profile CEO Larry Ellison, has been a veritable bellwether for tech stocks over the last two decades.  Like the technology sector at large, Oracle stock has definitely seen its ups and downs.  From the big run for ORCL stock in the 1990s to their drubbing in the early 2000s, and then another stellar run in the mid-2000s followed by a big sell off due to the recent global recession, shareholders have certainly been subject to a lot of action.

The question now is not whether the action in Oracle stock will continue (it surely will), but whether that action will be to the downside or the upside.  Here are five reasons why Oracle’s next move will be higher and this is a great stock to buy.

Oracle Posts Strong Earnings. In June, Oracle surprised the Street with a much better-than-expected fiscal fourth quarter earnings report.  The company reported a 25% jump in earnings on strong sales of its bread-and-butter database and other business software, and a nice bump from its acquisition of Sun Microsystems (more on the Sun deal in a moment).  Oracle’s net income in the quarter was $2.36 billion, or 46 cents per share, compared with $1.89 billion, or 38 cents per share, a year earlier.  Excluding items, Oracle’s profit would have been 60 cents per share, 6 cents better than the 54 cents per share consensus estimate.  Revenue also surged in fiscal Q4, jumping 39% to $9.51 billion, from $6.86 billion one year ago.

ORCL Leveraging Sun Buyout.  Part of the reason why Oracle surprised the Street was due to increased revenue from hardware sales.  This bump to Oracle’s bottom line comes courtesy of their acquisition of Sun Microsystems.  The deal was much maligned by many tech analysts as a bad one for Oracle, but given the strong Q4 hardware sales it’s safe to say that Mr. Ellison is having the last laugh.  In Oracle’s first full quarter with Sun, hardware revenue came in at $1.2 billion.  That number contributed more than $400 million to Oracle’s Q4 operating income.  Not a bad way to start off a parternship.

Oracle’s Head in the clouds.  Oracle isn’t the kind of company to rest on past laurels, and the Sun acquisition proves it.  Another area where Oracle sees opportunity is in so-called “cloud computing.”  This is a form of IT virtualization that can help companies and public entities increase computing capacity without significant investment in new internal infrastructure, and without training a hoard of new personnel or licensing new software.  Oracle’s panoply of business software solutions (database, middleware, development tools), along with its virtualization and clustering technologies—and now hardware capabilities courtesy of the Sun deal—put the company in a strong position to benefit from what many analysts see as the inevitable IT migration into the clouds.

Oracle and The Ellison Factor.  One huge factor when considering the fate of Oracle shares has to be the Ellison factor.  Detractors say the man is a virtual poster boy for capitalism and greed, but supporters know that he’s a man who makes money for shareholders.  Of course, Mr. Ellison is one of the highest compensated CEOs in the world, earning over $130 million in 2009.  But if you look at the kind of value he’s returned to shareholders over the years, one can conclude that Mr. Ellison is well worth his hefty compensation.  Moreover, Mr. Ellison still owns about 20% of Oracle stock, which gives him a lot of skin in the game when it comes to the stock’s fortunes.  Say what you want about Mr. Ellison’s lavish appetites, including massive yachts, extreme homes and NBA ownership aspirations, the bottom line is that this is a man knows how to achieve a bottom line.

ORCL Stock and Favorable Technicals.  One part of the Oracle equation not controlled by Mr. Ellison is the share price.  After a big drubbing in May and June, Oracle shares are finally on the move higher.  Their recent breaching of both the short-term, 50-day moving average and the long-term, 200-day moving average means that traders definitely have a bullish bias toward the stock.  That means that now could be a great time to add some ORCL to your tech portfolio.

oracle orcl stock chart

As of this writing, Jim Woods did not own a position in Oracle.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/07/oracle-orcl-stock-buy-tech/.

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