Oracle: A Big-Cap Rival's 45% Run and Funds' Interest

Over the past year, narratives have been more powerful in moving stocks than financials and fundamentals have been. The best rallies of 2020 were always accompanied by promising stories of future growth. Oracle (NYSE:ORCL), admittedly, has a very poor growth story. The decades-old legacy technology company has been a laggard since its flagship database products have given way to the cloud. Oracle's slowness to adopt the cloud has been one of the primary criticisms of the stock over the past several years - but now, after both a serious internal revamp to focus on cloud applications like Fusion as well as earthshaking acquisitions like that of Netsuite in 2016, the Oracle of today looks much more future-forward than it did in the past. The stock has appreciated ~20% over the past year, but its performance has still lagged dramatically vis-a-vis tech peers.

As I continue to focus on positioning my portfolio defensively in anticipation of a market correction in 2021, Oracle stands out among the pack as a "safe" tech stock to go overweight on. A couple of key bullish drivers for Oracle that are keen to point out:

- Broad Portfolio: Oracle's portfolio is broad and covers every spectrum of enterprise technology. Oracle now has a full suite of front-end applications covering functions such as supply chain, finance, HR, sales - everything under the sun. The company has also retained its traditional strength in backend infrastructure, with products like the Oracle Autonomous Database (a personal project of founder Larry Ellison, who remains the company's Chairman and CTO) blending AI and automation capabilities to purportedly lower the cost of database operations for clients.
- Offsetting Declines: Not all of Oracle's products have to be winners: at the moment, cloud apps continue to see 20-30% growth, offsetting declines in legacy segments.
- Profitability: Profitability has long been core to Oracle's DNA. Oracle has retained enormous profitability, even with its shift to cloud and away from lucrative license/maintenance contracts.
- Cost Reductions: Recent personnel decisions could boost profitability. Oracle's decision to move its headquarters from Redwood Shores to Texas could help lower Oracle's overall personnel costs. It has also announced a flexible remote work policy that is also slated to reduce overhead (Larry Ellison himself has committed to working out of Hawaii for the time being).
- Cash Reserves: Oracle has >$38 billion in cash on its most recent balance sheet (though admittedly that's also against ~$71 billion of debt), giving it plenty of firepower for more transformative acquisitions that can help juice growth.
- Valuation: Strong value proposition. At current share prices just north of $63, Oracle trades at a very attractive forward P/E of 14.6x, based on Wall Street's $4.36 EPS consensus for the current year. A deal like this is difficult to find in the current market.
- Dividend Yield: Oracle's ~1.5% dividend yield is an additional incentive to hold onto this stock for the long term.

Though largely overlooked, I think Oracle offers great balance for your tech portfolio. Use any near-term dips as buying opportunities.