Stock of the Week


February 23rd 2021

Nasdaq Symbol: ORCL
Industry: Software
Price as of 2/19: $61

The major averages are performing well to start the year with the S&P 500 up 4% through the first two months of the year. Every pull back has been met with buyers as investors remain bullish on 2021. Global economic growth could reach 4% this year thanks to plenty of stimulus coming down the pike with more stimulus checks going out, a trillion-dollar infrastructure bill to repair our roads and bridges along with the reopening of the economy as vaccine shots are bringing down hospitalizations. With the recent run up, valuations for many stocks and sectors are getting stretched. The S&P 500 index currently trades for 23 times earnings and 20 times next year's earnings. The tech sector has benefitted the most from increased valuations. The US has gone from no trillion-dollar companies to nearly a handful including Apple, Microsoft, Google, and Amazon. These four tech stocks have benefitted and profited from the transition of corporations to more cloud-based business. This week we will highlight another cloud-based software maker left behind in the market cap run up. The featured stock of the week is Oracle. 

Barron's over the weekend featured Oracle with an article comparing the company to larger rival Microsoft from 10 years ago. Microsoft reinvent themselves for the cloud-computing era. Oracle is betting big on a cloud-only version of its core database software business while also focusing on more juicier opportunities in the public cloud space. 

The transition to the cloud is coming at a good time. Oracle has only grown sales 11% cumulatively over the last 10 years. Microsoft's sales have grown 134% over the same span, while sales, built by former Oracle executive Marc Benioff, are up 1,200%. If Oracle can make more of a transition to the cloud, analysts see sales growing closer to 10% as profit margins improve. Better numbers should give Oracle's stock a new valuation. Currently, Oracle trades for 13 times earnings and 4 times sales verse bigger rival, Microsoft that trades for 9 times sales and 30 times earnings. Analysts are warming up to the stock with price targets of $75 and $82 a share or 18% and 34% higher than Friday's close. In a market with stretched valuations, Oracle may be a good bet for the continued transition to the cloud.