Todd Denning's  Instablog

Oracle 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. Let's take a look at what others are seeing.

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Moat, Margin of Safety, & ROE

Oracle has an enviable leader position in the database market that gives it a comfortable economic moat. 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. 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 them room to continue growing quickly through acquisitions. Oracle's earnings are projected to grow by 11% each year from 2012 to 2017 according to Valueline and they have a cash hoard of $30 billion.

Operations & 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 say 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.

Disclosure: I am long ORCL.