My All-Around Favorite “Growth” Company

Tomorrow, Oracle Corporation (ORCL) reports its numbers for its first fiscal quarter of 2015. What the company has to say about its business conditions is material to the equity market. 

Oracle is a benchmark technology stock that’s not expensively priced. The company offers dividends; its current yield is approximately 1.2%, which may not be enough for some investors looking for a large-cap, mature technology stock. 

Oracle’s share price tends to experience waves of buying enthusiasm. If the company just slightly beats consensus, there will be solid buying in the stock. 

But being a mature business, this company isn’t a fast grower. What it offers investors is a benchmark in enterprise information technology (IT) demand. A quick read of the company’s SEC form 10-Q can be very informative regarding enterprise customers and their spending. 

Oracle’s share price has been steadily climbing back and it’s almost at its all-time record-high set during the technology bubble of 2000. It’s been a great comeback from the irrational exuberance of those days. The company’s long-term chart is featured below: 

 

Chart courtesy of www.StockCharts.com 

Dollar for dollar, however, I still prefer Microsoft Corporation (MSFT) for those investors looking for a blue chip technology stock. 

The company pays more in dividends, its valuation is about the same as Oracle’s, and it has a multifaceted business strategy that includes both consumer and enterprise customers. 

Furthermore, I think Microsoft is more likely to deliver better capital gains over Oracle in the near- to medium-term. 

This doesn’t mean that Oracle can’t accelerate its business growth going forward. All the company has to do is get the next business cycle in enterprise and government spending right, and it could deliver higher single-digit sales growth than recently (about five percent per year). 

Microsoft, however, has much more cash in the bank and short-term investments. The company can afford higher dividends to shareholders, and a quarterly hike in the near future would be in keeping with its previous dividend increases over the last five years. 

While Oracle’s share price recovery since the technology bubble has been fairly consistent, Microsoft’s hasn’t. Only recently did the stock break out of a 12-year price consolidation. But this breakout price strength contributes to my theory that this stock has better capital gains potential compared to Oracle. Breakouts from long periods of price consolidation are typically very meaningful. 

Earnings estimates are still ticking slightly higher for Microsoft this fiscal year and next. The company is growing at a faster rate than Oracle and management’s recent focus on expense control should be noticeable in Microsoft’s upcoming financial results. 

Microsoft is on my list of investment-quality stocks for long-term investors seeking income. (See “Jumping on the Risk Bandwagon? Think Again.”) 

For the risk, I like Microsoft over many other large-cap technology stocks—even those growing at much faster rates. 

Another earnings season is soon upon us and Oracle starts things off early. Even if you’re not interested in the company as an investment, it’s worth perusing its earnings report for a quick read on enterprise IT spending. 

This is useful business intelligence and the company’s numbers will be a near-term catalyst for the broader market. 

This article My All-Around Favorite “Growth” Company was originally posted at Profit Confidential