Oracle Highlights Investors Dilemma

While Oracle's earnings last night disappointed, I believe Oracle is a  microcosm for both the bull and bear case for the broader market. The bear case is that earnings is a lagging indicator, but eventually the macro will catch up with earnings. Oracle was able to keep earnings up while global growth slowed but eventually gravity set in. Bears will argue that macro headwinds will only worsen as will earnings.

The bulls will point to the fact that despite the earnings disappointment, earnings are still growing. Oracle now trades at less than ten times forward earnings estimates, once one considers the $3 of cash per share Oracle holds. After building cash for years, Oracle announced a $5 billion share repurchase plan last night. The savvy Larry Ellison was not interested in repurchasing shares when they traded above $36 a few months back but at $26 he is a buyer.  Investors should follow suit and buy low for a change.

I am torn by both the bull and bear arguments as they both have merit. I believe that one can only buy cheap when the news is bad and buying cheap is the best predictor of long run returns. At  the same time I recognize the unprecedented headwinds. Oracle's earnings exemplifies the dilemma that investors face. The debate goes on.

2 comments:

Anonymous said...

a freilich chanuka to you too !!!!!! and have a healthy and PROSPEROUS (matzliach) new year...
and thanx for that reference to mishlei... i wasn't aware

Tsachy Mishal said...

Happy Chanukah and a Happy, Healthy and Prosperous New Year. Thank you for the loyal following.