How Much Money is Oracle Making?
I like to think of Oracle (NYSE: ORCL) as the “Rodney Dangerfield” of tech stocks. The financial software provider makes lots of money but gets no respect from Mr. Market.
Oracle is a value investment because of this lack of respect. Its shares were trading at $48.43 on 17 August 2018, despite a gross profit of $9.073 billion for 2nd Quarter 2018.
Likewise Oracle delivered revenues of $11.252 billion, a net income of $3.407 billion, and a year-to-to-year revenue growth rate of 3.3% on 31 May 2018. All signs of a very healthy and profitable company, yet Mr. Market failed to notice.
Oracle is a House of Cash
Oracle is a classic Ben Graham value investment because it is cash-rich company that gets no market respect.
Oracle reported $21.620 billion in cash and equivalents and $67.261 billion in cash and short-term investments on May 31, 2018. Oracle’s cash rivalled Alphabet’s (NASDAQ: GOOGL), which reported $14.148 billion in cash and equivalents and $102.254 billion in cash and short-term investments on 30 June 2018.
Yet Oracle’s stock was trading at less than 5% of the Alphabet’s (NASDAQ: GOOG) stock price. Alphabet shares were trading at $1,215.06 on 20 August 2018. As I noted above Oracle shares were trading for $48.51 on the same day.
Like any good value investment, Oracle had a lot of cash in the bank, and more rolling in. Oracle reported an investing cash flow of $3.16 billion, an operating cash flow of $4.66 billion, and a free cash flow of $4.282 billion on May 31, 2018.
Oracle is a Good Dividend Stock
Shockingly, Oracle is also a good dividend stock. Oracle investors received a 19¢ payout on 31 July 2018. That payout was a 4¢ increase over 2017 when investors received 15¢ a quarter.
Importantly, Oracle has reported six straight years of dividend growth. Oracle investors enjoyed a dividend yield of 1.58%, an annualized payout of 76¢ and a payout rate of 24.9% on 17 August 2018.
Therefore, Oracle has two obvious advantages to Alphabet as a stock. It is cheaper, and it pays a dividend. Oracle by than Google for average people seeking a growth stock.
Why Oracle Gets No Market Respect
The $67.261 billion question is why does Oracle receiving far less market respect than it deserves.
The obvious answer is that Oracle’s products are unseen and unknown by those outside the financial services sphere. For example, I was unaware of what Oracle did until I worked in accounts payable at a Fortune 500 company.
I used Oracle products every day in that job, and realized that the company would cease to function without them. Oracle makes software solutions vital to government, corporations, and other large organizations.
Therefore, Oracle has the traits of a classic Buffett value investment. It provides widely used infrastructure that is all but invisible to the public.
Most people use or are at least aware of Alphabet and its products, Google, Android, YouTube, etc. Everybody knows what Apple (NASDA: AAPL), Facebook (NASDAQ: FB) and Netflix (NASDAQ: NFLX) are.
Nobody, outside accounting seems to understand Oracle which makes it a value investment. That makes Oracle a fantastic income stock because it is cheap, fairly safe and stable and pays a good dividend.
The Rodney Dangerfield of Stocks
Rodney Dangerfield was an iconic standup comedian respected by his peers but ignored by the public until late in his career. Dangerfield, made a joke and a career out of the lack of respect.
He even used “I get no respect” as his catchphrase. The inside joke was that Dangerfield received a lot of respect.
Therefore, many people will wonder if there is a Rodney Dangerfield test for stocks. The characteristics of a Rodney Dangerfield stock are:
- Low price
- Good fundamentals.
- A lot of cash.
- A good business.
- A low profile, unknown to the public.
There is an easy way to spot the Rodney Dangerfield stocks. Read the financials. Look for companies with low stock prices then read their financials.
Stocks that Mr. Market disrespects can make money
A good way to begin is with fields you know such as I did with finance. Check for companies that make widely used products that have a low stock price.
You should be careful because a Rodney Dangerfield stock can sometimes breakout and become a big star. An excellent example of such an issue is NVIDIA (NASDAQ: NVDA). The chipmaker’s share prices exploded in the last year, after decades of modest growth.
Understanding the basic characteristics of a stock and the business behind it is the best way to spot the Rodney Dangerfield issues. Stocks that Mr. Market disrespects can help you make money.
