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Motley Fool: Oracle continues to outshine foes

Sun., Jan. 18, 2009

Oracle (Nasdaq: ORCL) CEO Larry Ellison never misses a chance to belittle his competition. Fortunately, Oracle has the business performance to back up his smack-talk. The second quarter saw earnings flat over year-ago levels and revenue up 6 percent. Yeah, you read that right: up.

Even in this economy, Oracle’s customers still feel compelled to renew their contracts for licenses and support to its database and middleware platforms. These applications are the lifeblood of most information technology departments, and switching vendors is not done at the drop of a hat. There would be databases to convert and support staff to retrain, for example.

Many of the issues that keep Oracle’s fans loyal also make it tough for the company to steal contracts from its rivals. That’s probably why Ellison and his gang take such obvious pride in their ability to grab fresh market share. Ellison touted several large wins over customer-relations specialist, and he claimed to have possibly passed IBM as the largest middleware provider in the world.

Oracle generated $7.6 billion of free cash flow over the past four quarters, 15 percent above the previous period. This giant remains on the lookout for opportunistic buyouts, and it accelerated its share buyback to $1.8 billion last quarter, from less than $500 million in the first quarter. Watch out, small competitors!

Ask the Fool

Q: How often should I check up on my stock holdings? – P.W., Lawrence, Kan.

A: Ideally, you should follow the firms’ developments every three months, when quarterly reports are issued. At that time, read through the reports (annual reports are long, but quarterly reports are much briefer) and through past press releases, all of which you’ll typically find at each company’s Web site. With stable, long-term holdings, you can get away with checking in less often. The condition of a young, quickly growing outfit such as Netflix is likely to fluctuate much more than that of an established blue chip such as Kellogg. DVDs by mail can be eclipsed more quickly than breakfast cereal.

Q: I read that IBM’s “market cap” is $110 billion. What does that mean? – H.D., Keene, N.H.

A: A company’s market capitalization reflects the value the stock market is placing on it right now. To get it, you multiply the total number of shares outstanding by the stock price. The result can help you get a sense of whether the firm is overvalued or undervalued – if you compare it to peers and others. IBM’s market cap tells you that the market has placed a price tag of about $110 billion on the company.

That $110 billion is a hefty number, by the way. It’s more than the market cap of Coca-Cola (which was recently $104 billion), Verizon ($95 billion), Oracle ($87 billion), Philip Morris ($85 billion), Hewlett-Packard ($84 billion), PepsiCo ($81 billion), McDonald’s ($67 billion), Merck ($56 billion) and Boeing ($30 billion). To compare, ExxonMobil’s market cap is the largest, at around $400 billion, with Motley Fool Inside Value recommendation Wal-Mart coming in second, at $220 billion.

My dumbest investment

In 1998, a buddy and I decided we were ready to make a fortune with commodities stock options, but we had no idea what we were doing. I purchased three options for sweet crude oil, costing me about $2,900, and my buddy bought sugar. We thought the U.S. was definitely going to war in the Middle East and that El Niño would affect the sugar market. Well, this was one of the few times the U.S. didn’t go to war, and the sugar speculation didn’t pan out, either. So within three months, I’d found a way to lose $2,600. The sick part is that it happened during a time that one could throw a dart at the Wall Street Journal and find a winning stock. – K.R.W., online

The Fool Responds: Commodities and stock options can both be very risky. It’s easy to lose all your investment with options, and commodities let you invest with very little down, making it very easy to quickly lose much more than you invested. You can do well without ever investing in them.

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