Is Oracle Corporation’s Drop Your Chance to Load Up?

ORCL stock - Is Oracle Corporation’s Drop Your Chance to Load Up?

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Shares of Oracle Corporation (NYSE:ORCL) haven’t been trading too well, tumbling some 5% on June 14. While ORCL stock started to recover as the week ended, some investors have to be wondering if this is a buying opportunity.

At the root of the sell-off were a pair of somewhat negative analyst takes. JPMorgan analyst Mark Murphy downgraded the stock to neutral from overweight and cut his price target to $53 from $55. Recent CIO surveys by the analyst team, which are “highly predictive,” make Murphy nervous about Oracle’s metrics. Nomura analysts didn’t cut their rating and still maintain a buy recommendation. However, they did lower their price target by four bucks to $60.

Both targets still imply upside and I don’t know that Oracle really deserved that much of a selloff on those catalysts alone. That’s probably why shares rebounded on Friday despite the selling pressure in the broader market, including 1st Tr Exchange/Nasdaq Tech Divid I (NASDAQ: TDIV), which slipped 0.2%. ORCL stock has a 3.62% weighting in that exchange-traded fund’s portfolio.

Valuing ORCL Stock

Analysts are looking for good but not great earnings growth this year. For a software company, that can be a turnoff among investors. After all, look at how much love International Business Machines Corp (NYSE:IBM) gets. Although it has worse growth that Oracle, it’s got a low valuation and a whopping 4.32% dividend yield. Yet shares have gone nowhere — except down 25% over the past five years — while tech has enjoyed new all-time highs.


ORCL stock is better, though. Analysts expect sales to climb 5% this year and 3% in 2019. Far from great, but at least it’s positive. On the earnings front, forecasts call for full-year earnings per share of $3.08. That’s up roughly 12.5% from last year and analysts expect 2019 earnings to grow more than 9%. Outpacing revenue growth should allow Oracle Corporation to expand its margins as well.

Currently priced just over $46, ORCL stock trades at about 15 times earnings. But that’s sort of the problem, too.

Would you rather own ORCL at 15x earnings or Apple Inc. (NASDAQ:AAPL) at 16.5x? Even after the latter’s massive rally — up almost 20% in six weeks — it still looks better. Apple has better revenue growth this year and next, and twice the earnings growth rate in 2018 and 2019. It has a stronger brand and balance sheet, and a far superior capital return program.

We’ll give ORCL stock the edge in dividend yield, at 1.65% vs 1.53%. But it didn’t announce a $100 billion buyback in April, nor does it have Warren Buffett gobbling up billions of dollars of its shares.

Trading ORCL Stock

So Oracle versus Apple clearly favors the latter. But now ask yourself, why buy Oracle over SAP SE (ADR) (NYSE:SAP), which just hit a new 52-week high on Friday? Or for that matter, why buy ORCL over, inc. (NASDAQ:CRM) which hit a 52-week high on Thursday, or Microsoft Corporation (NASDAQ:MSFT) which hit a 52-week high earlier this month?

It’s a simple argument of what’s working versus what’s not. The cloud is hot, hot, hot and ORCL stock is not, not, not. Oracle’s yield and valuation may be compelling against its cloud peers, but its growth rates are not. When you expand to the tech sector as a whole, its valuation and yield aren’t that compelling.

It’s leaving ORCL stock floating in no-man’s land, exactly where it’s been for the past year.

chart of ORCL stock
Click to Enlarge
Source: Chart courtesy of

So what now? The chart above is a wee-bit complicated and I’ll acknowledge as much. Let’s start with some obvious levels. There’s support at $46 and resistance at $52, both shown with black lines. There’s short-term trend-line support in green and another downtrend support line in purple.

Finally, in blue is a long-term trend line. In 2016 and 2017, this level was support but in 2018, it has turned to resistance. For me to get bullish on ORCL stock, I need shares to get above this level.

Coincidentally, such a move would put it higher than all three major moving averages and give bulls a shot of retesting its highs near $52.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell was long AAPL and CRM.

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