Buy Oracle on the J.C. Penney Turnaround Story
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
About a month ago, I suggested that Oracle (NASDAQ: ORCL) was the best way to play back-to-school based on its then recently released partnership with J.C. Penney (NYSE: JCP). As the retailer continues to struggle to move its redesign forward, I maintain this opinion with the caveats that 1) J.C. Penney’s recent selloff makes it an even more interesting speculative play; and, 2) that the warming reception of the turnaround concept makes Oracle even more appealing. Based on increased strength for Oracle’s product base coupled with downside protection from the J.C. Penney partnership, Oracle should be a part of your core portfolio.
The J.C. Penney Outlook
Despite the reality that Penney’s CEO, Ron Johnson, has been telling the Street that the changes underway at the retailer will take time, Monday’s trading session was the third straight decline for the stock. Much of the slide has been attributed to last week’s analyst meeting at which Mr. Johnson again reiterated that changes are happening slowly; he said that the company’s financial hardships will continue throughout the second half of the year, including through this year’s holiday season. The three day slide represents a 15% decline in the stock price and suggests that investors may be unwilling to stick with the company as it presses forward.
On a more favorable note, however, many of the analysts that toured one of the first fully revamped stores had a positive reaction to the changes. An analyst from Nomura Securities said: “We want to believe this can work, and longer term, we think it will. But this has been, and will likely continue to be a roller coaster ride with many ups and downs.” The general sense was favorable for the new concept, but negative for the timing. It is unlikely that the company will begin to see results until well into next year. As such, J.C. Penney remains a speculative play that should be treated as having multi-year potential and near-term volatility.
The Oracle Connection
Last week, Oracle unveiled its Mobile Point-of-Service (POS) product for retailers. The product is an enhancement of the company’s Retail POS Service and was one of the cornerstones of the J.C. Penney revamp. The product allows retail clerks to float throughout the store and complete full service transactions from anywhere on the sales floor. In the J.C. Penney context, the retailer envisioned creating multiple boutique-like departments within its stores that could be serviced by clerks from start to finish, thus improving the customer service experience.
The concept of mobile POS is not new or unique to Oracle; Apple (NASDAQ: AAPL) has been employing the technique with great success in its Apple Store retail locations for some time. This has been a feature that has given Apple Stores the feel of a high-tech, forward-thinking retail destination. It remains unclear how the approach will play in a retail clothing environment, but Mr. Johnson’s vision is to get staff actively involved with customers in the way that Apple Genius’ (Apple retail clerks) do, thus driving sales. As the mobile POS model expands beyond Apple, it will be interesting to see if there is any impact on Apple’s approach.
The partnership with J.C. Penney gives Oracle a big stage on which to debut its latest product offerings. In addition to the mobile POS, Oracle is working with Penney’s to integrate an RFID system as a second wave of advances in its stores. With RFID (radio frequency ID tags), the entire checkout process can be automated, leading to further customer service improvements and reduced staff costs. If the rebirth of the retailer is successful, it will serve as a springboard to additional new business for Oracle’s integrated POS system. If the retailer languishes, Oracle will still have the ability to peddle its product to other retailers. Furthermore, Oracle continues to have a robust enterprise business that gives it great stability moving forward.
Given the overall strength of the company, the stock is a buy. The partnership with J.C. Penney has the potential to fuel future growth and highlight new products. When these factors are combined, the stock is a strong addition to your core portfolio.
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Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Oracle. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.