Shares of Oracle (Nasdaq: ORCL), the world’s No. 3 software company, had recently been trading near its 52-week high. But after posting its third-quarter earnings report, which missed Wall Street expectations slightly, its shares took a hit of close to 10 percent. The company blamed its aggressive sales-force expansion.
Still, the report featured stronger profit margins and record free cash flow. Revenue from software licenses and subscriptions division fell a bit, but only due to a strong dollar. Licenses and subscriptions are of great interest, as they promise high margins and recurring revenue.
Oracle’s solid long-term track record is largely thanks to founder and CEO Larry Ellison, who aims to be either No. 1 or No. 2 in a given market. If the company can’t achieve that, it’ll either exit the market altogether or leverage its strong balance sheet to acquire a company that will help it get to a market-leading position.
Oracle’s acquisition of Acme Packet, for example, helps it offer clients secure network sessions supporting multiple applications. Acme Packet’s product portfolio also boosts Oracle’s competitive position against enterprise rival Cisco.
The stock seems attractively priced, with a recent P/E ratio of 15 and a forward P/E, based on projected earnings, of just 11. ( The Motley Fool owns shares of Oracle and Cisco Systems, and its newsletters have recommended Acme Packet and Cisco.)
Ask the Fool
Q: Do I have to sell my IRA stocks when I turn 70 1/2? – C.M., Springfield, Ill.
A: With traditional IRAs, you must begin taking distributions after you turn 70 1/2. These withdrawals generally will be taxable. You may need to sell some stocks in the IRA to generate the cash to withdraw (though some IRAs permit distributions of shares rather than cash).
If you have a Roth IRA, there are no mandatory distributions. And if the Roth IRA is at least five years old and you’re older than 59 1/2, distributions are tax-free. Learn much more about IRAs at fool.com/retirement.
Q: Can I claim a loss on worthless stock without selling the shares? – S.B., Las Cruces, N.M.
A: You might be able to, but you’ll have to determine whether your stock qualifies as “worthless” according to IRS rules. It’s often simpler to just sell. If selling through your broker isn’t worth it, you can sell the shares to a friend (or cousin, aunt or uncle) for pennies. But not to a spouse, siblings, parents, grandparents or lineal descendants. Here’s one way to do it:
(1) Get the actual stock certificates from your broker.
(2) Formally sell the shares, with a payment check and bill of sale.
(3) Sign over the stock certificate (on its back) to the buyer. Have the signatures verified by your banker and/or a local stockbroker.
(4) Send the certificate to the stock’s transfer agent, explaining that the shares have been sold. Ask the agent to cancel the old shares and issue a new certificate to the new owner.
Some brokerages will buy your shares for a penny as a service for their clients. Learn more at irs.gov and fool.com/taxes.
My dumbest investment
I bought and continued to buy E-Trade on its way down in 2008. I’d heard good things about it from a TV stock guru, and I also knew of a respected hedge fund manager who was buying shares as they fell. I fooled myself into thinking that these experts knew better than I did.
I ultimately learned not to buy a stock that’s on fire assuming it probably can’t get much worse. Wait for the fire to be put out and see if there is anything worth salvaging in the ashes.
With E-Trade, I didn’t appreciate how big its banking and mortgage business had become, so much so that there was talk of bankruptcy during the credit crisis. – B.D., Temecula, Calif.
The Fool responds: It’s critical to understand that a falling stock can fall further, even if it seems really cheap. Remember that stocks often fall for valid reasons, some of which are short-term issues and others long-term or permanent problems. If you maintain confidence in a company, though, waiting out a downturn can be smart. In recent years, E-Trade has still been struggling.