"Technically, Oracle (NASDAQ: ORCL) is now set up nicely in a base for a breakout," says Leo Fasciocco, a technical analyst who specializes in stocks breaking out above previous resistance levels.
In his Ticker Tape Digest, the newsletter advisor explains, "ORCL is in a good spot to be accumulated for a breakout, supported by favorable earnings prospects. And as a big cap play, it is most suitable for conservative investors."
"Oracle, based in Redwood City, California, sells a wide range of enterprise software solutions, including databases, middleware, and applications. With annual revenues of $22.4 billion, ORCL is one of the largest software companies. Its updates and product support are the most profitable segment of its operations. It accounts for 46% of revenues.
"The company has an active acquisition program that is a fundamental component of its strategy. ORCL has spent more than $28 billion in acquisitions the last four fiscal years.
"The stock's long-term chart shows a powerful run up to 40 during the 2000 bull market. It then went south with the stock market. It has since been working its way back. Short-term, the stock rallied from 18 to 23 and has formed a cup-and-handle base. That type of pattern is sometimes found with big caps. The stock is now set up nicely in a base for a potential breakout.
"The handle portion of the base has shown a nice contraction in volume, showing that selling pressure is drying up. That reflects itself in the accumulation-distribution line which is still trending higher.
"The company will be reporting a big jump in quarterly earnings soon. This fiscal year ending May 2009, analysts forecast a 17% increase in earnings to $1.48 a share from $1.26 a share a year ago. The stock sells with a price-earnings ratio of 14, which is low given the growth rate.
"What makes ORCL look good at this point is that earnings for the upcoming fiscal first quarter ending August 30 should jump 30% to 26 cents a share from 20 cents a year ago. The growth rate for the quarter is well above the norm and could attract attention and buyers for the stock.
"The highest estimate for the quarter is at 27 cents a share. We see chances for a modest upside surprise. The past three quarters, ORCL topped the consensus estimate by one to four cents a share.
"The stock's institutional sponsorship is excellent. The 5-star rated American Funds Fundamental Investors was a recent buyer of 1.7 million shares. Also 5-star rated Janus Twenty Fund added 19 million shares."
Author: Steven Halpern @ http://www.bloggingstocks.com
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