Saturday, September 12, 2009

Oracle - the future is bright

When your business goes digital you need somewhere to store the data. And that is where Oracle comes in, providing the database software that allows users to store, backup and retrieve that data easily.

Sounds pretty basic but practically every company on earth bigger than a corner shop needs a database and Oracle is the market leader.

In the UK the National Health Service is gradually moving away from patients carrying their own notes around to having central databases that store all that vital information. This is not the sort of data that can be stored in a spreadsheet or an Access database or even a free database product like mySql. The sheer quantity and confidentiality of the data means that an enterprise solution must be used and Oracle is the prime candidate.

So Oracle is in a growing market and has been for the last 30 years. But what about the financials?

ORCL has a non-GAAP trailing PE of 15 and analysts estimate that it will grow at about 15% a year for the next 5 years. It has a cash mountain of about $9 Billion which it is using to fund share buybacks, acquisitions and its recently started dividend payments. Its non-GAAP margin is 46% and this figure just keeps rising as the proportion of its income that comes from software maintenance increases.

ORCL is currently trying to purchase Sun Microsystems - a move which will see Oracle offering hardware products for the first time. It is also a great chance to increase the profitabiliy of Sun by getting its cost base under control.

My time has run out but ORCL looks good as a purchase for the very long term. With dividends, share buybacks, a cash mountain, margin expansion and constant growth it ticks all the boxes. How many companies can you say that about?

Saturday, September 05, 2009

A quick hello

Well I am still alive and investing!

Having a baby has rather impacted my morning routine hence the recent lack of posts. Hopefully I will be getting my early mornings back sometime soon!

Anyway what is the current status of my portfolio?

I am still fully invested and even have some bank shares showing a profit!

In an investment book I read it said that if you can get through a bear market without selling your shares on the way down then maybe you have the right aptitude to be a stock picker rather than just invest in the index.

So I passed that test but can I pick the right stocks?

Sometimes but I have been taught a painful lesson about diversification in the last couple of years. Being overweight banks in the summer of 2007 was not very clever but in my defense I did not buy any Northern Rock even when it looked really cheap. Secondly no one saw the banking crash coming - not the Bank Of England and certainly not the directors of the banks. So what hope did I have? Hence the need for diversification.

The good news is that one of the banks I held was Barclays which is now at 50% of its pre-crash price and could conceivably return to 2007 levels in the next 5 years. The even better news is that I bought more Barclays early this year and those purchases are now showing a gain of 160%!

The bad news is that I bought into Halifax before the crash. Those shares are showing a 95% loss and will stay in my portfolio as a lesson that even blue-chips can get things spectactularly wrong.

Regarding other companies, I am keen to buy into Oracle but as I decided that now is the wrong time to buy defensive shares (which is how I think of Oracle) I put the money into Barclays to catch some of the current recovery. This plan is turning out rather well, with those purchases showing a 20% gain over a couple of months. By the year end I will probably take the profit and put the money into ORCL.

Looking at things from 10 miles up, the current decade has been a challenging one to begin investing in! The FTSE 100 will almost certainly end the decade lower than it started it. So I don't feel too bad about showing a loss. And maybe the next decade will be like the 1990s?

That would be refreshing!