Oracle: Time to Take Some Profits?

Posted Jan 26th 2011 11:00AM by Joseph Lazzaro
Filed under: Oracle Corp (ORCL), Stocks to Buy

Enterprise software leader Oracle (ORCL) which I first wrote about on April 7, 2009, at a price of $18.54, has uptrend in undulating fashion to about $32. Now may be a good time to consider taking some profits if you're in at $19 or below.

However, those investors who can tolerate the risk can maintain their full position with ORCL, but keep in mind the journey to $40 may not be completed in 2011.

Look for Oracle's FY2011 revenue to increase about 30% to 35%, aided by hardware systems and support sales gains via acquisitions.

In addition, software licenses should increase about 8% to 10% in FY2011, on database and middleware gains propelled by the global economic expansion. Also, synergies and supply chain efficiencies stemming from the Sun Microsystems acquisition create an even more appealing one-stop hardware/software business model.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for ORCL are $2.07 to $2.30. Each EPS estimate looks about 5% low, according to my analysis.

Technically, ORCL will encounter psychological resistance at $40, and as noted, it may take longer than the 2011 calendar year to get there.

2011 Outlook: I view Oracle as a long-term play, but if you're looking to sell Oracle within the year, it's probably best to take your profits after it rises to $37 to $39, if it fails to clear $40. I'd also raise the sell/stop loss to $18 from $13 at this stage.

Stock Analysis: I consider Oracle Corp. to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in ORCL now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 75% of my ORCL position before March 2011, and I'd put a sell/stop loss at $18.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: featured, Oracle, Oracle revenue, ORCL