An Oracle’s Oracle

An Oracle’s Oracle

Dr. Paul Price makes the case for buying Oracle (ORCL) in his Seeking Alpha articleOracle Versus SAP: Valuations That Defy Logic. Paul argues that ORCL is undervalued. Especially compared to SAP:

S&P assigned a 4-star (out of five) buy rating to SAP with the shares at $77.21. They called present-day “fair value” as $70.90. Standard & Poor’s 12-month price target? $78, a whopping 1.02% above the current quote. If S&P is correct, we’d see only a 2.23% total return over the coming year.

S&P puts ORCL’s quality ranking in the top 1% of its entire research universe. It sees “fair value” as $39. That figure is 26.1% above last week’s closing price. S&P inexplicably carries a 12-month target price of just $34.

S&P rates Oracle only as a “hold.” Achieving even its lower, very modest, $34 goal would bring investors almost 10% from the present price, plus a yield of 0.8%. Many people would be quite satisfied with about 11% on a high-quality stock in our ZIRP [zero interest rate policy] world.


Paul notes that Morningstar also likes ORCL, giving it a 4-star buy rating and a $39 fair value estimate – same as S&P’s. While Morningstar’s analyst coverage currently leaves SAP temporarily unrated (for stars), it suggests that SAP is overpriced “based on a fair value that has been cut to 23.6% below the present price.”


Paul continues,

My own preference for predicting future price action is to assume a regression to the mean on various metrics for the same company’s shares. Note the valuations for ORCL at its previous “best buying opportunities” of the previous decade.

Oracle’s P/E is now lower than any time in the previous 18 years, excepting the exact bottom in 2008-09… ORCL shares look extremely cheap based on P/BV and P/CF as well.

Oracle’s outstanding results are not being reflected in its share price, which remains 15.3% under its 2011 peak. Meanwhile, SAP trades just pennies below last week’s all-time high of $77.38. Swapping out of SAP and into ORCL makes sense. (Oracle Versus SAP: Valuations That Defy Logic)

We’re adding 95 virtual shares of ORCL to Paul’s Virtual Portfolio. 95 shares is about $3,000, representing approximately 3% of the initial value of the Virtual Portfolio.


Here is a screenshot of the most recent update of the Virtual Value Portfolio:



Paul began this virtual portfolio on 10/28, buying approximately $3,000 of the stocks listed in column A. The prices in column H are the closing prices on 11/28/12.

Paul added to ESRX on 11/7, taking this position to 5%. Paul increased the allocation of CLMS to 5% on 11/26.

*Originally, Paul’s virtual portfolio position allocations were approximately 3%. We put 70% of our virtual cash into 23 stocks on 10/28, 3% each. Paul raised ESRX’s allocation to 5% on Nov. 7. He similarly raised CLMS’s allocation to 5% on 11/26. (Rule: positions should not exceed 5% of a portfolio.)

Virtual profits taken on the ANF position on 11/15 at $41.80.

TAP added on 11/19 at $40.15.


KSS added  11/29 at $46.

ORCL added 11/29 at $31.93.


See also: Market Shadows (11/25): From Fed, With Love. For the latest Market Shadows newsletter, click here. 


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