Top Tech Cycle Play with Even More Legs

Will This Company Make It as a Long-Term Cycle PlayOracle Corp. (ORCL) reports on Thursday and it’s one of the first large corporations to do so this reporting season. Second-quarter earnings season is just about here, and it’s exactly what the stock market needs now.

The lull between earning seasons can make for some wacky trading action. Often trading volume diminishes and from a business perspective, what you want from a company you’re thinking about investing in (or divesting) is its most recent numbers.

I thought that first-quarter earnings season was pretty decent, and I think companies will surprise the marketplace again for the second quarter.

A couple of trends that emerged in the first quarter was that European operations of large multinationals showed improvement comparatively, and that’s important for these super big companies that do business in developed markets.


The other trend was that currency instability held back corporate earnings. In many cases I read reports where the bottom-line would’ve been one to three percent higher if it weren’t for major devaluations in developing economies with large populations. Of course, this is an ongoing investment risk that any multinational is going to face and as an investor, there really isn’t anything you can do about it.

It will be worthwhile perusing Oracle’s upcoming earnings report; it’s the company’s fourth fiscal quarter of 2014.

Oracle is a company that I’ve liked for a number of years as an investment-grade equity security for long-term investors. But the business does experience periods of stagnant growth. (See “Another Earnings Season Suggests Another Quarter of Slow Growth Ahead.”)

I was enthusiastic about this position early last year as a long-term cycle play (with government and corporate customers), but competition from the cloud was taking its toll on its quarterlies and the company just couldn’t generate the kind of near-term growth that the marketplace was looking for.

The stock dropped from $35.00 to $30.00, and it traded within that range for all of 2013.

But the great monetary expansion continues and now, Oracle is back above $40.00 a share in a near-term uptrend.

Last quarter (its fiscal third quarter of 2014), the company was able to grow its GAAP earnings per share by eight percent comparatively.

It would have been up 10% comparatively and non-GAAP earnings per share would have been up seven percent (instead of five) if it weren’t for the strengthening of the U.S. dollar.

Larry Ellison has been pushing hard into the cloud and the company’s fiscal third quarter produced solid double-digit growth in this area.

The company’s fiscal fourth quarter should show the same, and it’s what Wall Street is looking for.

I think this stock has more legs and is a cycle play. Top-line growth is difficult, but investors will still bid the position if earnings come through.

Wall Street is looking for low single-digit growth in revenues this fiscal year, accelerating to about five percent for fiscal 2015. Annual earnings for 2014 and 2015 are expected to be in the high single-digit area and the company offers a dividend, which currently yields around one percent.

Oracle is a benchmark stock in technology, which is why its earnings report is worth reading for economic intelligence.

The great thing about this position is that it is not expensively priced, and an upside earnings surprise could easily see this stock break $45.00 a share.

If the company doesn’t meet or beat the Street, then I’d take profits in this position. If it does have a good quarter, this stock would be a near-term buy, due to it currently being fairly priced.