ORCL Leaves A Lump Of Coal In Investors’ Stockings

| December 17, 2011 | 0 Comments

Last week investors were happily preparing for a long holiday weekend.

At the time, investors were celebrating a new ECB program to pump massive amounts of liquidity into European banks.  And investors were feeling outright jolly about some of the best US housing data in months.

It looked as though Santa Claus would deliver the rally so many investors had on their Christmas wish list.  Then, the most unlikely of companies played the Grinch…

Tech giant Oracle (ORCL) missed analysts’ quarterly earnings estimates.

It was a stunning blow from a company that’s known for how well they manage earnings.  I can’t even remember the last time Oracle missed earnings…

Shocked investors promptly put the entire tech industry on the chopping block.

Here’s the thing… anyone selling tech right now is misguided.

You see, sellers are drawing broad conclusions about tech spending from incomplete information.  They think one bad quarter at ORCL foretells a massive decrease in business tech spending.

However, this conclusion couldn’t be further from the truth.

First off, you can’t identify a trend in one quarter.  This is a disappointing quarter for ORCL… nothing more, nothing less.

In fact, businesses continued spending more money on technology.  They just didn’t accelerate spending as fast as some analysts were expecting.  But sales still increased at ORCL last quarter.

What’s more, the most damning evidence many so-called experts pointed to was weaker than expected sales of new software licenses.  Analysts were expecting a double-digit gain and they only increased 2% from the same time last year.

Ok, 2% isn’t great.  But it’s still a gain.  I just don’t see how one quarter of slower growth is an indication spending in the entire tech industry is starting to decline.

And here’s the kicker…

The only reason Oracle’s sales came up short was a few big deals were delayed.  And there’s still a chance those deals end up closing this quarter.

Think about it, who can blame those businesses for delaying their purchases.  Who in their right mind wasn’t a little hesitant to shell out huge sums of money?

Have you seen what’s been happening in Europe?  For much of the last quarter, it looked like the European debt crisis was about to blow up the European Union and sink the Euro currency!

I don’t know about you, but that doesn’t sound like the backdrop of an environment where companies want to spend money.  The added uncertainty from Europe almost certainly played a role in the decision to delay capital spending.

Yet, even with the European headwinds, ORCL grew revenue and earnings.

No doubt about it, this is a classic market overreaction.

Don’t forget, ORCL has a strong balance sheet, pays a dividend, and is in the midst of a $5 billion stock repurchase program.  So, management’s clearly committed to delivering shareholder value.

What’s more, ORCL is just starting to expand their presence into cloud computing… an area that’s growing four times faster than overall tech spending.  And they’re gearing up to grab an even bigger chunk of money spent on cloud services.

Oracle President, Mark Hurd said, “we have expanded our worldwide sales capacity by adding over 1,700 sales professionals in the first half of this fiscal year.  We believe that this increase in our field organization combined with innovative new products like Fusion Cloud ERP and Cloud CRM will enable solid organic growth in the second half of this year.”

Clearly, ORCL’s quarterly earnings were disappointing.  But it’s not the end of business tech spending many are making it out to be.

I’ll even go as far as calling ORCL a screaming buy at these prices.

We could see ORCL trade even lower in the short run.  Try scaling into a position.  Start with buying 25% of the total position size you’d like to own.  If ORCL falls below $25, buy more.

ORCL will recover from this misstep and so will their stock price.  We’ll likely look back at the lump of coal ORCL gave of us this Christmas as the best gift a Grinch has ever given.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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