Today’s new Top Pick for 2013 comes from Validea,com CEO John Reese.
“Oracle Corporation (ORCL, $35) — Heading into 2013, the sluggish economy has businesses continuing to cut costs wherever they can. They’re also looking more and more to the ‘cloud’ for their technology operations. Both of those factors should mean strong demand for Oracle’s array of cloud-focused, cost-saving products and services.
“Perhaps more importantly, the firm’s fundamentals are excellent. It’s upped earnings per share each year of the past decade, one reason it gets strong interest from my Warren Buffett-inspired ‘Guru Strategy.’ 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 the firm has the ‘durable competitive advantage’ Buffett likes to see.
“My Peter Lynch-based approach is also high on Oracle. Lynch famously used the P/E-to-Growth ratio to find bargain-priced stocks, and Oracle’s 15.9 price/earnings ratio, 19.1% long-term EPS growth rate (based on an average of the three-, four-, and five-year growth rates), and 0.7% dividend yield make for a very solid 0.8 yield-adjusted PEG, a sign that it’s a bargain. (I’m long ORCL.)”
- John Reese, Validea Hot List Newsletter, December 24, 2012