This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Oracle: Is It Time to Throw in the Towel?

NEW YORK ( TheStreet) -- Owning Oracle (ORCL - Get Report) stock this year has been an unpleasant experience. With the S&P 500 and Dow Jones Industrial Average indexes posting gains for the year that exceed 17% and the NASDAQ composite (CVX - Get Report) delivering even better results, it is tempting to look at the negative total return Oracle investors have suffered this year and conclude that it is time to move on. This is a completely understandable perspective, but is it the best course of action right now?

There certainly has been plenty to trouble Oracle's shareholders this year. Concerns arising from the global macroeconomic environment have been exacerbated by Oracle-specific developments. In back-to-back quarters the company has released results that have failed to meet investor expectations and following these announcements, stock owners have suffered sharp losses.

For the company's most recent quarterly results, Oracle's management highlighted the headwinds of a strengthening US dollar and cited softness in Latin America and EuroPac markets as contributors to the disappointing results. Oracle also acknowledged productivity issues with its sales force during the period, echoing a refrain from its previous quarter's results.

Like other mature technology companies, Oracle's business model has to adapt to a changing environment. The company now faces a world in which competition is stiffer from competitors that are swifter. Oracle's ability to compete in this new environment is in question right now. Is the lack of sales force productivity a transitory development as the company suggests, or is it a troubling sign of a more competitive environment? Is Oracle too late to make a splash in the cloud and as a result falling behind key competitors like Salesforce.com (CRM - Get Report) and the upstart Workday (WDAY - Get Report)?

Without definitive answers to these questions and the equity markets advancing handsomely, I understand the temptation to dump the stock now and move on. That said, I think there is real value in Oracle's shares at current levels and I don't think it is time to abandon the investment just yet.

There are a few reasons to be optimistic. First of all, Oracle has a large cash hoard and is producing cash at an impressive rate: the company has nearly $7 per share of gross cash on its books and is generating free cash flow of over $13 billion annually. Of course, this doesn't make Oracle unique - many mega cap tech companies including Apple (AAPL - Get Report), Microsoft (MSFT) and Intel (INTC) have balance sheets that are cash rich. What does differentiate the company is the company's demonstrated willingness and ability to utilize considerable amounts of its cash in productive ways. After paying an accelerated special dividend at the end of last year to front run changes to the tax code, the company recently reinstated its dividend sooner than anticipated. The company also doubled the amount it pays per share. Admittedly, the dividend yield is only 1.5%, but it is a constructive step in the right direction. When considered with the company's move to increase its sizable share repurchase program it demonstrates Oracle's willingness to return cash to shareowners.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $126.59 -1.50%
CRM $65.60 1.10%
CVX $104.94 -0.21%
ORCL $43.78 0.39%
WDAY $83.50 1.00%

Markets

DOW 18,115.88 +18.98 0.10%
S&P 500 2,100.80 +2.27 0.11%
NASDAQ 4,980.2310 +13.09 0.26%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs