Oracle Corporation (ORCL), Wells Fargo & Co (WFC): Donald Yacktman’s Two Newest Buys

Oracle Corporation (NYSE:ORCL) is cheap now

Oracle Corporation (NYSE:ORCL), the global tech giant operating in more than 145 countries with more than 390,000 customers, seems to be quite cheap. The company is trading at $32.20 per share, with the total market cap of around $149 billion. The market values Oracle Corporation (NYSE:ORCL) at around 7.6 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). Oracle Corporation (NYSE:ORCL) offers its shareholders low dividend yield, at only 1.50%. However, it had quite a conservative dividend payment policy, with a low payout ratio at only 13%.

Oracle has two main operating segments: software and hardware. Most of its revenue, $27.5 billion – 74% of the total revenue – was generated from software, while the hardware business accounted for only 14% of the total. Safra Catz, the company’s president and CFO, mentioned that Oracle has returned nearly 90% of its cash flow to its investors in terms of dividends and share repurchases. The company also intended to repurchase an additional $12 billion, delivering a sweet 8% buyback yield to their shareholders.

Oracle could be a compelling long-term pick because of its loyal customers and consistent recurring revenues. IT people say that when customers have Oracle’s systems/software in place, they would not be inclined to change to another system. Moreover, with a lot of resources and more than $32.2 billion of cash on hand, Oracle could spend a lot on R&D to strengthen its systems and develop new platforms and products to cope with the fast-changing IT environment.

My Foolish take

Oracle has the global leading position in the IT industry with its great exposure in the high-margin software business. Oracle expects to generate 9.55% in total yield to investors. Wells Fargo, on the other hand, enjoys a high net interest margin and consistent historical EPS growth. It was estimated to generate 4.54% yield to its shareholders. Indeed, both Oracle and Wells Fargo could be considered great businesses to own in the long run at their current trading prices.

Anh HOANG owns shares of Oracle. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM)., Oracle., and Wells Fargo. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Donald Yacktman’s Two Newest Buys originally appeared on Fool.com is written by Anh HOANG.

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