Oracle Corp.'s (ORCL) rough 2018 trend could actually make the stock a safe pick for 2019.
Shares opened up over 5% before paring back gains on Tuesday, briefly sending the stock into the green for the year. However, the stock's laggard status in tech and price to earnings ratio far below its peers could make it a rare non-risky play in technology and software.
"[Oracle's] portfolio management approach to software is paying dividends, and a large and growing maintenance revenue provides financial flexibility," Oppenheimer analyst Brian Schwartz said. "Oracle is also viewed as a defensive stock in a negative macroeconomic environment given its earnings resilience."
The company's fiscal second quarter earnings release, coming in above estimates on Monday as many tech stocks fall, highlights that point.Sticky Revenue Sustains Share Price
The company's "sticky" recurring revenue base also helps price in a floor for risk averse investors apprehensive about a potential slowdown ahead.
"ORCL derives about 50% of revenue from recurring software and maintenance, and a big part of ORCL's value proposition revolves around the cost benefits from standardizing on a single IT stack," Wedbush analyst Steve Koenig wrote following the company's earnings. "Also helpful is ORCL's broad-product portfolio and diverse customer base, which helps to insulate ORCL from category or industry-specific risks, unlike vendors focused on a single vertical such as manufacturing or financial services."
As such, the company should not be inhibited by any sector specific slowdowns to specific tech verticals that could adversely impact many rivals.Value in Valuation
Oracle could also be a safer bet than its competition as the market transitions to a more value-based trend that rewards fundamentals.
Morgan Stanley analyst Keith Weiss noted added that the current market environment bodes well for the company, which carries a price to earnings ratio of just 13, to drive its stock up through continued earnings growth.
"If any of growth initiatives supporting management's forecast of accelerating growth into the back half of fiscal year 2019 come to fruition...there should be upside to the multiple from these levels," he said. "As one of the few true 'value' plays in Software, we remain Overweight on ORCL shares with a $57 price target."
With contemporaries like Amazon (AMZN) and Microsoft (MSFT) commanding PE ratios higher by significant margins, Oracle would appear to be best for risk averse investors, as its floor is a much shorter fall.
To be sure, the stock may not have far to bounce either, as the company's bounce on earnings has evaporated quickly, much as Jim Cramer anticipated.Buyback Boom Continues
Of course, even amid a potentially increased volatility ahead, the company's aggressive buyback program should allow it to sustain the stock price.
The tech titan auctioned $20 billion in share repurchases over the past two quarters, a trend many see continuing into 2019 due to the remaining $9.8 billion authorized for further buybacks.
"We note that buybacks combined with liquidity and favorable valuation have proven to make ORCL a "safe haven" in times of historic volatility," Piper Jaffray analyst Alex Zukin noted. "Within our coverage universe, Oracle was the best-performing name during the Spring 2014 and Winter 2016 "tech wrecks" and has been one of the top performers during the current drawdown as well."
With much of the investment community awaiting Jay Powell's upcoming decisions and the prospects of an encroaching economic slowdown, Oracle could end up being a strong value pick amid volatility for defensively minded investors.