Top picks 2013: Oracle

This stock scores well on models based on strategies of Warren Buffett and Peter Lynch.

By TheStockAdvisors Dec 25, 2012 1:49PM
Image: Arrow Up, Nicholas Monu, iStock Exclusive, Getty ImagesThis post is one in a series in which 50 newsletter advisors share their Top Picks for 2013.

By John Reese, Validea Hot List Newsletter

Oracle (ORCL), my top conservative stock for 2013, has a couple of nice macroeconomic trends behind it.

One is that the tech world is becoming increasingly cloud-focused, and Oracle offers a myriad of cloud-related products and services. Another is that in a slow-growth economy, businesses are looking to do more with less, and Oracle's offerings are designed to increase efficiency and lower costs.

Perhaps more importantly, the firm's fundamentals are excellent. Oracle has upped earnings per share in each year of the past decade (and is on pace to do so again in 2012).

This is one reason it gets very high marks from the "Guru Strategy" that I base on the approach of another Oracle -- the "Oracle of Omaha", Warren Buffett.

My Buffett-based model also likes that Oracle could, if need be, pay off its $18.5 billion in long-term debt in less than two years given its $10.3 billion in annual earnings.

And it likes Oracle's 24.9% ten-year average return on equity -- a sign of the "durable competitive advantage" Buffett likes to see in his buys.

My Peter Lynch-based approach also has strong interest in Oracle. The firm's 19.1% earnings per share growth rate (I use an average of the three-, four-, and five-year EPS growth rates to determine a long-term rate) and high sales make it a "stalwart" according to the Lynch approach -- the kind of large, steady firm that Lynch found offered protection during tough times.

Lynch famously used the P/E-to-Growth ratio to find bargain-priced stocks, and when we divide Oracle's 15.9% price/earnings ratio by the sum of its long-term growth rate and dividend yield, we get a very solid yield-adjusted PEG of 0.8.

More from TheStockAdvisors.com

2Comments
Dec 26, 2012 2:51AM
avatar
 I think we're looking at a short term correction in the next 6 months or so. Better to wait and catch it on the low.
Dec 26, 2012 1:53AM
avatar
Buy stocks now, as the market tops and DC pushes us over the cliff? HO Ho Ho!
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
284
284 rated 2
461
461 rated 3
671
671 rated 4
628
628 rated 5
618
618 rated 6
615
615 rated 7
495
495 rated 8
347
347 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.