Gainers📈 & Losers📉

Our Biggest Gainers & Losers of the Day in the $100,000 Build Portfolio

For the 10th September 2024:

• Tech’s Best-Kept Secret🤫

• Game Over?🎮

Tech’s Best-Kept Secret🤫

No one really talks about Oracle. They’re like Cinderella working away in the background while all the attention’s on the ugly sisters.

But today Oracle got their glass slipper & spiked over 11% making them my biggest gainer of the day!

“What happened”, you ask?

Oracle just dropped some seriously impressive Q1, FY25 numbers. If they keep it up, it looks like the stock is going to kick it up a gear. You might want to get onboard the Oracle train if you’re not already.

Let’s dive into the details! 👇

 Oracle’s Killer Q1 Numbers 💪

Here's what stood out:

- Revenue: ORCL posted an 8% year-over-year (YoY) revenue growth to $13.31 billion, beating expectations of $13.23 billion. They didn’t just meet the target, they crushed it.

- Earnings Per Share (EPS): Reported adjusted EPS of $1.39, once again beating the estimate of $1.32. Growth in revenue & profit tells me the company is really dialing in on efficiency & found the sweet spot.

- Cloud is King: 79% of Oracle’s total revenue now comes from their cloud services. This is where things get super exciting. Cloud services & license support revenue grew by 11% YoY to $10.5 billion, powered by Oracle Cloud Infrastructure (OCI), which saw consumption revenue surge by 56%. 🔥

Oracle’s cloud division is where the real action is & I think this is just the beginning of their next growth phase….

A New Partnership with Amazon (AWS) 🌐

Any time the words “Partnership” and “Amazon” are put together with a company, it’s usually going to be good news for them.

This is no different. This is BIG.

Oracle has teamed up with Amazon Web Services (AWS) to launch Oracle Database@AWS. It’ll allow customers to integrate their Oracle databases with AWS applications. This gives Oracle exposure to AWS’s massive customer base.

New customers should equal new dollar bills.

And now Oracle have got their foot in the door with Amazon it could lead to more enterprise deals & adoption of Oracle’s cloud services down the line. Add in Oracle’s existing partnerships with Microsoft & Google, it’s clear to see that they’re playing the long game with a multi-cloud strategy. And being in bed with all those big boys can only mean good things for top line growth in the future.

Oracle’s Growing Pipeline: 53% YoY RPO Growth 🚀

Now, this is where things get really interesting. Oracle’s Remaining Performance Obligations (RPO), (money a company is expected to earn in the future from contracts it has already signed but hasn't finished yet) jumped a massive 53% YoY to $99 billion. That’s huge.

What makes that even more impressive is that Oracle usually sees a seasonal decline in RPO during Q1. This quarter was different. They signed a bunch of large deals that saw back-to-back growth so pour one out for the sales team.🥂

Not only is the backlog growing, but cloud RPO specifically surged by more than 80%. That idea that the cloud services will continue to be a major growth driver? Looks like a banker. Especially with their recent deals & growing infrastructure. 🚀

Oracle’s Spending to Win: CapEx Doubling 💸

Just like your favourite video game, business can sometimes be pay to win. And in a competitive space like tech & cloud services, if you don’t spend in the right places, you’ll get left in the dust.

No fear of that here.

Oracle is making serious investments. The company spent $2.3 billion on capital expenditures (CapEx)(money a company spends to buy or improve things like buildings, equipment, or technology to help the business grow) last quarter & is forecasting that its FY25 CapEx will be double what it was in FY24.

So what is it being spent on exactly?

They’re ramping up data center capacity to meet the demand for OCI (Oracle Cloud Infrastructure). With cloud RPO growing at 52%, this larger capacity will let them keep up with the growing workload. You know what that means right?

Higher cloud revenue growth.

Cha-Ching!💰

Wall Street is Turning Bullish on ORCL 🐂

Remember when I said Oracle are just like Cinderella? Well, Wall Street have been the evil step mother not giving her enough love. But that’s starting to change.

Of the 35 analysts covering the stock, 21 now rate it a buy. That’s up from just 17 buy ratings back in December. The stock is currently trading around $155, & analysts have price targets ranging from $163 to $172, giving ORCL a potential upside of 4-12%. 📊

This isn’t just hype. Oracle’s partnerships, cloud growth, & improving macro conditions (like potential Fed rate cuts coming this month) are all setting the stage for what I think will be a strong FY25 for Oracle.

Oracle’s Valuation: Not Overpriced 🧮

Now, let’s talk about whether Oracle is fairly valued. The stock trades at 26.3x 2024 earnings versus a peer group average of 63.1x. It seems high if you compare it to its historical multiple but if they get traction on this new found growth trajectory, it’ll be justified.

Oracle’s forward EV/Sales ratio of 8.2x is slightly above the peer group average of 8.0x, but with all the momentum behind their cloud business & partnerships a llittle premium is to be expected. Plus, with RPO growth like we’re seeing, there’s a strong pitch for more upside.

So What Should You Do? 🤔

Well I can tell you what I’m doing & hopefully that’ll help.

There’s a lot to love here. Cloud growth booming. Big partnerships with Amazon, Microsoft & Google. Future revenues already penciled in with RPO growth & they’re spending to meet demand.

I think it’s a bit of a no-brainer.

I’ll be holding my current positions & scaling more into the position the whole time the fundamentals stay where they’re at or similar.

If there’s any unjustified pull backs (wider market concerns, profit taking from today’s rally) I’ll be a little more aggressive with my positioning. As of right now, it sits at just over 1% of the portfolio.

Learn from investing legends

Warren Buffett reads for 8 hours a day. What if you only have 5 minutes a day? Then, read Value Investor Daily. We scour the portfolios of top value investors and bring you all their best ideas.

Subscribe with one click.

Game Over?🎮

Low interest rates aren’t great for everyone. That’s what gave me my biggest stinker of the day.

Daniel Pinto, JPMorgans President, come out & said that the net interest income forecast they have “isn’t very reasonable” with interest rate cuts on the horizon.

Cue the -5%+ drop. As low as -8% at some parts of the trading day.

Where does that leave us with our JPMorgan positions? Is it buy the dip? Hold? Sell what we have & run?

Let’s figure it out.

JPMorgan: A Loan Machine 🏗️

JPMorgan has been crushing it over the last few years & there’s two big reasons for it. Rising interest rates & a boom in loans.

They've been able to charge more on the money they lend out because of higher interest rates, & they’ve also managed to grow the total amount of loans they hold.

That’s quite the combo.

We’re talking a jump from $1 trillion in loans back in 2020 to $1.3 trillion now. 📈

Mix in some credit card loans growing like crazy (from $144 billion to $211 billion), and you’ve got a recipe for a big fat money pie.

These trends helped JPMorgan post a killer ROTCE (Return on Tangible Common Equity) of 20%, which is a fancy way of saying they’re making good money off their assets. But the party can’t last forever & the peak might be in.🚨

What's the Catch? 😬

The Federal Reserve (the guys in charge of interest rates in the US) is thinking about lowering them. In fact, it’s almost certain they will this month. Inflation data is out tomorrow so we’ll have an even clearer picture but I think it’s more a question of how much they’re going to cut them by at this point.

 When If they’re cut it could throw a spanner in the works for JPMorgan’s ability to keep growing its profits. If they lower rates, the amount of interest JPMorgan can charge on new loans should drop, cutting into their net interest income. And, as much as we love diversification, their other revenue streams might not be enough to save the day.

Plus, even outside of interest rates, JPMorgan are starting to slow down in other areas. Loans stopped growing between the first & second quarters of 2024 & the cost of bad loans is starting to rise. If that continues, it could spell trouble for their earnings.

 So... Is JPM Still a Good Buy? 🤔

Look, JPMorgan is still the cream of the crop when it comes to banks. They've got a super solid balance sheet & an all-star CEO, Jamie Dimon, steering the ship.

But here’s the question - with interest rates coming down how exposed do you want to be to the banking sector when there’s other sectors that benefit from it?

Their valuation is already a bit rich & the road ahead looks bumpy. I don’t think “buy the dip” is the answer here.

If you’re looking for a strong upside, JPM may not be your best bet in the near future. In fact, trimming some exposure to the banking sector might not be a bad idea.

JPMorgan is an A+ bank, no doubt. But you wouldn’t want a Ferrari if you’re going off roading, right? You’d keep it parked in the garage wouldn’t you?

So that’s what I’m going to do. Park the shares I have & see how the rate cuts go over the coming months. And I definitely don’t have plans to add position size into the banking sector for the foreseeable.

That’s all! See you same time tomorrow 👋 

P.S Hit reply & let me know what you thought of today’s newsletter. All feedback is welcomed ❤️