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Oracle (ORCL) is popping up everywhere. The company appears on most value screens I have recently ran and is a top pick of major value investors. On Guru Focus several top money managers have recently added Oracle to their portfolios. I believe Oracle is a compelling value investment with several growth initiatives that could unlock the value in the stock price in the near future. Several successful value investors have been buying Oracle stock. It is reasonable to assume they have researched the company and the value proposition Oracle represents so let's take a look at what others are seeing.

GuruDateTradesImpact to PortfolioPrice Range *(?)Current PriceChange from AverageCurrent Shares
Seth Klarman2012-06-30New Buy12.2%$25.75 - $29.68$ 31.8614%15800000
Glenn Greenberg2012-06-30Add 110.69%4.41%$25.75 - $29.68$ 31.8614%4006435
Richard Pzena2012-06-30New Buy3.9%$25.75 - $29.68$ 31.8614%11154144
Jean-Marie Eveillard2012-06-30Add 202.45%1.34%$25.75 - $29.68$ 31.8614%17436107
David Tepper2012-06-30Add 32.73%0.69%$25.75 - $29.68$ 31.8614%3097779
Lee Ainslie2012-06-30Add 31.49%0.55%$25.75 - $29.68$ 31.8614%5360370
Bill Nygren2012-06-30Add 23.46%0.48%$25.75 - $29.68$ 31.8614%5000000
Chris Davis2012-06-30Add 39.83%0.27%$25.75 - $29.68$ 31.8614%13860893
Scott Black2012-06-30Add 18.84%0.24%$25.75 - $29.68$ 31.8614%314484
Joel Greenblatt2012-06-30Add 24.5%0.07%$25.75 - $29.68$ 31.8614%157277

www.gurufocus.com

Moat, Margin of Safety, & ROE

Oracle has an enviable leader position in the database market that gives it a comfortable economic moat. The moat Oracle enjoys is based on its customers' high switching costs. Oracle's customers make multi-million dollar investments in Oracle products and services so the cost to switch to a competing service provider is very high. This is what creates Oracle's moat. The latest information from Oracle is that its total customer retention rate is 95%. Oracle's moat should allow it to earn excess profits over the long haul.

Currently, Oracle is also selling for about 70% of its $41 fair market value giving a 30% margin of safety. I calculated Oracle's value on a DCF basis using its 2012 earnings of $2.46 per share and a earnings growth rate of 10.5% for the next 5 years. I then had earnings level out after 5 years to 0% and used a 9% benchmark investment rate of return. I believe this a very conservative DCF analysis. I also checked my calculation against the DCF tool on Valuewalk.com which had Oracle's DCF value at $41.08.

In addition, Oracle has an amazing ROE of 28% and Oracle's profit margin is an enviable 34%. Oracle has a low debt load of only 24% of its market capitalization which gives the company room to continue growing quickly through acquisitions. Oracle's earnings are projected to grow by 10.5% each year from 2012 to 2017 according to Valueline and they have a cash hoard of $30 billion.

Operations And Acquisitions

Oracle operates in three computing areas: computer hardware, software, and services. Oracle has been pushing to break into new areas like cloud computing and social interaction and collaboration in companies. Oracle is busy growing beyond just being a database manager for companies. Oracle is staking its future on "big data" and working to add data consulting, data applications, and middleware.

Oracle has been busy growing through acquisitions. They have most recently acquired SUN Microsystems. In all, Oracle has acquired 41 companies in the last 5 years while focusing on cloud computing and social management companies. Oracle's growth strategy appears to be paying off for shareholders. Each acquisition has helped to ensure that their economic moat remains solid while keeping Oracle ahead of the competition.

Data Leads the Way

Data is the fastest growing segment of the information technology industry. Every year over 1.8 zettabytes of data are created and stored. Companies are drowning in their information and they need more and more help storing, sorting and pulling meaningful information from the data. True value is in helping companies create actionable information from all of the data they create every day. As humans create more and more data the demand for software and services will increase exponentially.

Mark Hurd, co-president of Oracle and former head of Hewlett Packard, says big data will increase 20 times from 2012 to 2020. Hurd also says Oracle is focusing on helping companies integrate unstructured data with their structured data to deal with the scale of data being created. Oracle is positioning itself to be a one-stop shop for companies in dealing with data storage, organization and consulting.

Firing on All Cylinders

Oracle is moving in the right direction operationally, financially, and on a valuation basis. Oracle has successfully transformed its business by becoming a cloud based provider of its services and increased its profit margin from 29% in 2007 to 33.6% in 2012.

The world's data needs are quickly growing and Oracle is positioning itself to be at the center of this dramatic shift toward data growth. This stock seems to have some room to run and excellent growth potential. Oracle appears to be a solid growth story that you can buy with a built-in margin of safety.

Disclosure: I have a long position in Oracle.

Source: Is Oracle The Best Investment Going?