This is old-school large cap tech stock that is very reasonable valuation-wise for investors. Oracle Corp. (NASDAQ: ORCL) trades at 14.6 times estimated 2016 earnings and still provides solid free cash flow yield. Oracle plans to make almost all of its services available via the Internet by mid-October, as the database-software company changes its business model to fit a new competitive landscape. Around 65% of Oracle’s products are available on the cloud today, and that is expected to climb to 95% by the time the company holds its annual Oracle OpenWorld conference in October.
The Jefferies analysts point out that the stock is down 11% so far this year, and they expect version 2 of the 12c database to drive an Exadata product cycle, and plain and simple believe that is not sufficiently discounted in the stock. They did lower the near-term cash flow because of the cost of the very aggressive move to the cloud, but they are boosting long-term growth and upgrade the stock to a rating of Buy.
Oracle investors are paid a 1.51% dividend. The Jefferies price target is posted at $50, and the consensus target is $46.42. Shares closed Tuesday at $39.66.
This company is a leader in the total addressable hard disk drive market at a very impressive 43.6% and is also a Franchise Pick at Jefferies. Western Digital Corp. (NASDAQ: WDC) reported earnings that were better than expected on the earnings-per-share side but missed on revenues. During the second quarter, Western Digital shipped 48.5 million hard drives at an average selling price of $60. While selling prices for the quarter were down from $61 in the previous quarter, they were up from $56 in the year-ago quarter.
The drop off in the personal computer (PC) business helps to spur initiative in the company’s cloud business, and the Jefferies analysts estimate that the company’s gross profit contribution from Business Critical (cloud) drives will exceed that of PCs by the second half of next year. Of all the stocks beaten down due to the poor PC environment, the Jefferies team feels Western Digital may have the most upside potential.
Western Digital investors are paid a 2.33% dividend. Jefferies has a $116 price target, and the consensus target is much lower at $101.95. Shares closed Tuesday at $84.39.
When these kinds of top stocks are put on sale, there is very little risk for long-term, patient investors. Some have solid and mature franchises, and others are good values and could be potential takeover targets. All these stock picks could have big return potential and less downside risk than crowded momentum stocks.