Oracle (ORCL) had one of worst earnings reports it is had in years after the bell yesterday. The stock was down heavily in the opening session. Although it was a hugely disappointing report, I am going to take advantage of the sell-off and add to my position and/or pick up some significant premium by selling June 2012 25 puts. The reasons I am adding to my position: There were some positive tidbits in an otherwise horrid earnings report and Oracle continues to be a solid long-term bargain whose value should increase significantly after it gets a couple of good earnings reports behind it again.
Some positive points in the earnings report:
- Management said some big deals did not close before end of the quarter. Since this was across all product lines, I think the company decided to throw in the “kitchen sink” and delay some sales once it knew it was going to miss targets. Take the hit now, and surprise on upside in the next quarter.
- Management also provided positive guidance for the next quarter.
- Part of the miss was attributable to currency conversion, which is volatile.
- On the conference call, Ellison mentioned a “Large, American smartphone manufacturer” bought 30 of Oracle’s Exadata systems. This basically confirms that Oracle gear is being used by Apple (AAPL) to build out its cloud. Being a core supplier to one of the largest and fastest growing tech companies in the world is a very good tidbit to glean.
“Oracle Corporation, an enterprise software company, develops, manufactures, markets, distributes, and services database and middleware software, applications software, and hardware systems worldwide”. (Business description from Yahoo Finance)
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4 reasons Oracle is still a solid bargain at under $26 a share:
- The stock has long-term technical support at $22 (See Chart)
- Oracle is going to be oversold today due to analysts’ downgrades/comments, quarter end window dressing selling and abandonment by momentum traders.
- You now can get Oracle, which has grown EPS at better than an 18% average clip for the past five years for under 10 times forward earnings
- Oracle is now selling at the very bottom of its five-year valuation range based on P/B, P/E, P/S and P/CF.