If Your Head's in the Cloud, Buy Oracle

NEW YORK (TheStreet) -- Every time I want to give Wall Street just a little bit of credit, something happens that presents indisputable evidence of just how it continues to get things wrong.

It continues to amaze me to see how often investors are easily swayed. They are quick to not only buy whatever hype Wall Street is commissioned to sell, but they are always the first to cry foul when it blows up in their faces. Often, the reason is because they opted to sacrifice value for the endless promises of growth.

There is no company today that fits this criteria better than database giant Oracle ( ORCL).

I say this because as enamored as investors have become with cloud computing companies, there is very little evidence to support the idea investors even understand exactly what it is they are excited about.

Amid all of the buzz surrounding "big data" and the likes of Salesforce.com ( CRM), EMC ( EMC) Riverbed ( RVBD) and F5 ( FFIV), what often gets lost is an understanding of exactly how this collection of data will be used. In essence there is a gross discount of what is known as "analytics," a service that is unmatched to Oracle.

Though the company continues to take this disrespect in stride, on Monday it demonstrated just how appreciative its customers have been of its services by reporting fiscal fourth-quarter earnings that topped Wall Street's expectations.

The company announced net income of $3.5 billion or 69 cents per share for the period ending in May. This compares favorable to what it produced last year when its earned $3.2 billion and 62 cents per share.

Oracle beat on both the top and the bottom lines. Customers were clearly pleased with its products and services as its registered revenue of $10.9 billion -- a 1% increase from the previous year. Earnings arrived at $4.1 billion, or 82 cents per share on a non-GAAP basis, topping analysts' estimates of $10.89 billion and 78 cents per share, according to FactSet Research.

As impressive as these numbers were, even more remarkable is its revenue from software licenses surged by almost 40% to $3.98 billion.

Its hardware revenue was no slouch, climbing by almost 10%. So with such an impressive showing, I'm left scratching my head in trying to understand exactly what else can the company do to receive the respect that it deserves.

How is it possible that Salesforce.com can command the P/E that it does while it still reports negative earnings? It makes little sense that both F5 and Juniper are able to command higher P/Es than Oracle.

Without question Wall Street continues to get this story wrong, and even more egregious is the fact that a name like Riverbed continues to command an erroneously high P/E even after reporting an earnings miss.

It is time that investors wake up to these errors while ignoring a company such as Microsoft ( MSFT), which is a dominant cloud name in its own right and yet remains undervalued.

Its cloud initiative has been ongoing as several of its most popular titles are becoming available on a subscription basis instead of the typical software box as part of its transition towards its Azure platform.

Microsoft is betting on the possibility that customers adopt the openness and flexibility of Azure because it enables users to build, deploy as well as manage applications across global networks. What makes this platform so unique is that it also allows easy integration of public cloud applications to existing enterprises while also enabling networks to build and run highly available applications without focusing on the infrastructure.

From that standpoint, Mr. Softy is the only other cloud name that I consider among the ranks of the underappreciated aside from Oracle.

Furthermore, what should be understood is that while everyone wants to focus solely on the collection of data, the real value will come it analyzing exactly what to do with the information, and how companies can execute decision-making to advance their corporate and enterprise strategies -- an area where Oracle can't be matched.

Also working in its advantage is the company's management team, one where it has a structure in place to address every component of the enterprise. To that end, the company has increased its spending on R&D while simultaneously acquiring companies it thinks can help it remain a leader for years to come.

For example, as a response to recent acquisitions made by rivals Salesforce.com and SAP ( SAP), it has gone on a shopping spree of its own by purchasing most recently Collective Intellect, a firm specializing in social media monitoring.

Bottom Line

Given the rate at which companies are accumulating "big data" and positioning their models for cloud efficiency, it seems reasonable to project strong ongoing demand for the services that Oracle provides. Also working in its favor is the fact that it is able to avoid vulnerabilities within the cyclical nature of enterprise spending -- an important factor allowing more consistent growth projections.

The bullish case for Oracle is simple. As businesses continue to strive for growth, the growth process will always place more demand on IT services. And as IT services get more complicated, they will require increased levels of expertise to manage the enterprise. There is no other company more capable of delivering these services than Oracle.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

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