Is Oracle a Good Stock to Buy?

We can also compare Oracle to Microsoft Corporation (NASDAQ:MSFT) and to Workday Inc (NYSE:WDAY), which is a $10 billion market cap cloud computing application software company. Microsoft trades at 9 times consensus earnings for the fiscal year ending in June 2014, but while that does represent value levels we would be concerned that there would be a temporary bump in earnings that year due to sales of new versions of Windows and Office. A potential value thesis would have to try to normalize the company’s earnings over a longer time frame, though income investors might like Microsoft’s dividend yield of over 3%. Workday IPO’d in October, and is up 26% from its levels shortly after that time; the sell-side does not expect it to be profitable either this year or next year, and while it has beaten expectations in the two quarters it has been public we would worry that the “cloud computing” factor may have generated too much excitement about the company.

Oracle and IBM’s valuations are low enough to get our attention, but at least at this point neither company is growing its earnings enough that we would consider it a true value stock. They might be better placed on a watch list to see how business develops in the next quarter or two- particularly Oracle, which could supplement bottom-line improvements with share buybacks.

Disclosure: I own no shares of any stocks mentioned in this article.