Oracle: 15% Gain Likely By 2013

| About: Oracle Corporation (ORCL)

In keeping with its balance sheet, I believe Oracle Corporation (NYSE:ORCL) is currently one of the more appealing assets to own in the computer software and hardware industries. In the following article, I will explain why investors should buy shares in Oracle now, while shareholders should continue to hold to shares for capital appreciation and adequate dividends.

Oracle is expecting more growth in its Exa hardware division next year, while it continues to provide upgrades in industry specific software and cloud services. Oracle is entrenched in industries of high growth potential, so shareholders can feel assured in substantial earnings for the long term. Here is what I found:

Oracle's sales growth has increased by over 20 percent from the previous quarter. Its sales growth has increased by less than 2 percent from the previous year. Oracle's current price is less than 12 times earnings; this is an improvement from the trailing 12 months price of less than 13 times earnings. Its beta is over one, while it's PEG ratio is less than one.

Oracle's return on equity has decreased marginally over the past three quarters. Its operating margin and net margin have each increased by more than 1 percent over the past three quarters. Oracle's current ratio has decreased over the past three quarters, but still remains above 2.5. Oracle has been able to slightly lower its debt to equity ratio over the past three quarters as well.

Oracle's dividend yield is around .81 percent, which equates to an annual rate of $0.24. This dividend yield is above the industry average. Oracle's price to earnings ratio is around 20 percent of the industry average. Oracle's growth rates for the past five years and next five years both exceed the industry averages. Its growth rate for this year and next year are both currently below the industry averages. Oracle's net profit margin and return on equity for the trailing 12 months are both around double the industry averages. According to its balance sheet, it is clear that Oracle is one of the leaders in the computer software industry.

In its Q4 2012 earnings report, management at Oracle highlighted a promising outlook for growth in its Exa hardware line. Despite the losses most corporations are experiencing from the problems in Europe, Oracle managed to finish with a strong quarter according to management. Oracle's software business outperformed IBM (NYSE:IBM) last year and is currently growing at twice IBM's rate through the past five years.

In the trailing 12 months, Oracle's new license revenue increased by 12 percent last quarter. Oracle's license growth over the past five years is double SAP's (NYSE:SAP). Oracle's applications division grew by around 27 percent in the previous quarter; North America grew by 38 percent. Despite a decrease in the year's volume, hardware gross margin grew by more than 50 percent. Shareholders can appreciate that Oracle repurchased over $200 million shares for almost $6 billion; this is more than in the past three years. Oracle has also improved its sales division.

Oracle expects its Exa business to double in 2013. By using Intel's (NASDAQ:INTC) chips, Oracle is improving the Exa line faster than IBM is improving its Power Systems line. Oracle expects its Exa line to be the leader in high-end systems in 2013. Oracle has industry-specific systems, SaaS and applications for healthcare, financial and retail businesses.

According to its recent earnings report, Oracle is now the number two cloud company worldwide. Oracle expects significant growth in hardware while challenging competitors like, inc. (NYSE:CRM) in the cloud market. Positive prospects in the hardware and cloud infrastructure markets make Oracle an asset in the market that is currently undervalued. Oracle has recently announced a number of launches that will help it to sustain its position as one of the preferred providers for corporations that need software applications to improve their business.

The Better Life Commercial Chain Share Company recently selected Oracle and its retail applications to help support its hypermarket operations in China. The China-based retailer currently operates in over 180 hypermarkets in the country. Better Life has a number of retail and real estate operations throughout Southern China. It will use various components of Oracle's Retail Applications to promote growth and expand its hypermarket business in order to sustain its leadership position in the increasingly competitive industry. Better Life will be using a wide variety of Oracle's other software application in order to replace its previous system to gain insight and increase its broad-based profitability. Better Life believes the new partnership with Oracle will help it to improve the efficacy in its management and operations.

At the end of June 2012, Oracle unveiled its new line of Oracle Retail Customer Analytics. This new edition to the Oracle Retail Applications line helps owners and management run effective queries and gain insight on the most profitable products all from one user-friendly dashboard interface. This new line of analytics can deliver reports to mobile and desktop devices in a variety of formats as well. Oracle is bringing big data capabilities to the average retail in a succinct package.

Oracle also unveiled Oracle FLEXCUBE 12.0 at the end of June 2012. This is the latest version of its effective banking platform that can help financial institutions more effective profile and service customers to create more cross-selling and upselling opportunities. This system is applicable to all aspects of financial operations and sales, including ATM interactions, web commerce, and online banking as well. Oracle has shown expertise for developing superior software systems that specifically exceed the needs of industry leaders in various sectors.

Aside from minor governance concerns ranging from questionable discretion, litigation or a lack of transparency over the past few years; shareholders should feel confident in holding onto the Oracle stock for the long term. Oracle has some of the greatest potential in the industry for capital appreciation and increasing dividends for the long term.

Interested investors should invest in this stock now. Aside from any additional flubs by Oracle's management or litigation issues, the stock price will likely gradually increase through the year. Based on the above reasons, I think Oracle will trade near its 52-week high of $33.81 by late 2013, a gain of 15% from its current trading price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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