Oracle Corporation (ORCL): Is It a Good Investment?

Oracle Corporation (NASDAQ:ORCL) is a giant in the enterprise software and database management industry. Oracle also has one of the leading positions in the quickly growing enterprise application marketplace. Research firm Gartner expects the enterprise resource planning industry to reach a size of $25 billion by the end of this year. Other drivers for Oracle will be increased spending on cloud computing and software-as-a-service markets, where global SaaS industry revenues are expected to be up 18% this year, and grow from $14 billion in 2012 to $22 billion in 2015.

Oracle has seen weakness in its hardware segment, but this has only marginally hurt the tech company given its diverse product portfolio. Future growth is expected to come from cloud computing systems, where Oracle has advantages over top rivals such as IBM and SAP. A focus on the cloud computing industry will only help fuel Oracle’s industry-leading position when it comes to high-margin products. Oracle’s EBITDA margin is upwards of 46%, where key competitors Cognizant and Adobe are at only 24% and 34%, respectively.

Oracle also remains proactive when it comes to acquisitions. Over the last ten years, the tech giant has shelled out more than $40 billion to acquire 80 companies, including Sun Microsystems. The Sun acquisition is expected to ultimately be the biggest long-term positive, as Oracle is now able to cross-sell its already robust software portfolio with its newly acquired hardware business.

From a valuation standpoint, Oracle is the cheapest when compared to major peers on a forward P/E basis at 11x. This is also below the tech company’s long-term historical P/E of 15x. Billionaire Ken Fisher – founder of Fisher Asset Management and long-time Forbes columnist – is Oracle’s top fund owner (check out Fisher’s newest picks).

Microsoft Corporation (NASDAQ:MSFT) is another tech company with a penchant for product diversification. This tech giant pays the highest dividend of Oracle’s peers at 3.4% with a payout ratio that is only 37%. Microsoft is a hedge fund favorite given its history of solid dividend increases, but it also has a portfolio that could present growth opportunities, including its Surface tablet, latest Windows OS and Office Suite. Microsoft is also one of the cheapest stocks in the industry at an 8x forward P/E. David Einhorn was one of the many billionaires owning Microsoft last quarter (see Einhorn’s new bets).