Mission 2013 : Where To Invest
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Keeping the size of the company in mind, Oracle (NYSE: ORCL) has been growing rapidly for the past 3 years. In 2012 alone Oracle acquired 9 companies, and it would be safe to expect improved cash flows from these in 2013. The CFO of Oracle recently announced that the company won’t be carrying out any more acquisitions. On the back of strong project pipeline and citing that Oracle is now “complete,” management expects to gain greater market share in 2013.
Oracle reported a 2% decline in sales, but an 11% jump in net profits in the most recent quarter. According to management the decline in sales is not a cause of worry, as its transition of the hardware segment would ensure fewer sales at higher margins. Due to the highly competitive cloud market, cloud services are cheaply available and SMEs are migrating to offshore data centers. On the back of this paradigm shift, revenues from its cloud services increased, which offset the decline in hardware sales.
The company has an impressive P/FCF of 12.64x with debt/equity at a modest 32%. Oracle has a gross profit margin of a massive 79%, and with a forward P/E of 10.97x, its shares appear to be undervalued. The strong reputation and solid position of Oracle makes the company hard to displace. Over the next 5 years, analysts expect EPS growth to average around 12%.
Staples (NASDAQ: SPLS)
With increasing automation, the need for office stationary is declining. Also, since companies are going green, the demand for printing paper is sliding. Staples, which is the leading office stationary provider in the US, is taking a hit, and over the last year its shares have slid by 23%. Quarterly revenues shrank by 3.3%, and on top of this, Staples has been shutting down US and European stores.
Staples trades at ridiculously high valuations, with a P/E of 380x and a PEG of 60x. These metrics indicate that Staples is trading at extremely high levels compared to its earnings and growth prospects. Analysts expect next year’s EPS growth to be merely 2.9% and the company has a tiny net profit margin of 0.13%. The lack of positive triggers, coupled with store shut downs, would only worsen its revenues, and in my opinion, investors should stay away from the stock.
Verizon (NYSE: VZ)
Verizon is one of the leading telecom companies in the world, with the largest post-paid consumer base in the US. The company generated a massive $5.6 billion quarterly FCF and $13.4 billion FCF in the first three quarters of 2012. Verizon enjoys a gross profit margin of 60.35%, and its investors enjoy a hefty 4.6% yield. Its P/FCF equates to massive 14.62x and analysts estimate its EPS growth for 2013 to be 16.26%.
On Dec. 13, the company announced its expansion of 100G network in Europe and the US. 100G network has been deployed on high traffic areas, where highly efficient and high speed networks are required, mainly to access their cloud servers. According to their release, the reach of 100G has been increased by 20,921kms in the US and 2,600km in the UK. As the cloud industry expands and the world shifts to Blu-ray content, the demand for high speed networks will eventually increase, giving Verizon’s broadband segment a chance to prosper.
Additionally, to capture the prepaid 3G market, the company has introduced lucrative 3G data packs. Verizon has also entered an agreement with CenturyLink, under which every new subscriber of CenturyLink has the option to avail Verizon’s discounted tariffs.
Overall the stock looks good, and the company has been reporting excellent growth figures. With good fundamentals and positive triggers to power the stock, I believe 2013 could be a great year for the company.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Oracle and Staples. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!