MarketBites Daily Investment Commentary: Oracle Bets On Cloud Computing I Tire Consolidation Shakes Up Industry

Stock Market Commentary for 2/23/2021:
  • The Big Picture:
    President Biden’s $1.9 trillion stimulus bill could be passed in the House as early as this week. Further, Royal Caribbean’s CEO pointed to strong post-Covid booking numbers, which lifted the entire travel sector.

    – Rising Treasury yields and inflation fears continued to weigh on equity markets. Investors continued to sell high-growth tech stocks, in favor of banks and energy stocks. This morning, investors are watching for any indication of how the Federal Reserve might react to the sharp rise in bond yields. Fed Chair Jerome Powell, is set to testify before the Senate Banking Committee today, and the House Financial Services Committee tomorrow.


  • Stock Talk:
    The Winner of the Day: American Airlines
    Investors are bullish on airlines as a sector, due to macro-trends fueling a huge day. Household debt and net-worth data suggest that Americans greatly lowered exposure to debt since the beginning of the pandemic. $1.5T in cash has been saved, Covid cases, hospitalizations, and vaccinations are all trending in the right direction.What’s Moving Pre-Market: Five9 Inc.
    According to its latest earnings report, Five9 Inc. reported a whopping 39% revenue growth, as the firm shatters through performance records. The stock rallied substantially after-hours (10.84%).

    The Loser of the Day: Viatris
    The generic drugmaker had a miserable trading session after reporting a need to revise guidance. The firm missed on nearly every analyst expectation, and investors are left feeling underwhelmed.


  • The Data Room:
    – Per Johns Hopkins, the U.S. reported 58,423 new Covid-19 cases yesterday. So far, 44.1 million Americans have received their first round of vaccinations.

– By Raymond Kanyo

 


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Top Investment Story #1: Oracle & The Cloud

What is Happening?

While major technology shares plummeted yesterday, Oracle jumped 5.43%, after Barron published a bullish cover story on the tech giant. Barron touts that Oracle could be the next overlooked tech company, who transforms into a high-growth cloud business (similar to Microsoft and Adobe).

Why does this Matter?

For over a decade, Oracle refused to show up to the cloud computing party, leaving Amazon, Microsoft, and Google to have all of the fun. This decision has proved costly, as Oracle’s revenue grew a mere 1.9% in the most recent quarter. The company is also valued cheap at 13 times earnings (almost 50% cheaper than the average company in the S&P 500 Index). Meanwhile, cloud computing companies trade for well over 30 times earnings.

In the cover story, Barron argues that Oracle has been busy transforming its legacy technology into a cloud-based infrastructure. This has the potential to unlock massive shareholder value.

Oracle’s CEO Safra Catz, claims that hers is the only tech company that has both a global cloud, and a full set of enterprise applications. “Our customers benefit because our applications make our infrastructure better, and our infrastructure makes our applications better.”

In the last quarter, Oracle’s cloud business grew 139%, and the company landed some impressive clients such as “Zoom Video” and “8×8.” Oracle currently holds a 3% market share in the public cloud segment, while Amazon AWS, Microsoft Azure, and Google Cloud own about 13% each. Some argue that Oracle is too late to the game, and it can’t compete with such well-funded giants. However, there is plenty of room for new entrants in a space estimated to be worth trillions of dollars.

Barron subscribers read the story here
Don’t have a subscription? Read a snippet here

The Takeaway:

Investors currently value Oracle as a no-growth enterprise technology company. However, if Oracle’s cloud transition proves successful, shareholders could be rewarded handsomely. Barron sounded very bullish on the stock, but Oracle still has a lot to prove in it’s cloud business. Last month, Goldman Sachs initiated coverage of Oracle with a sell rating, pointing to a loss in cloud application market share.

Liked this story? Forward it to your friends 

– By Raymond Kanyo

– Published in MarketBites Daily Newsletter


Top Investment Story #2: Goodyear Acquires Cooper Tire
What is Happening?

Goodyear Tire & Rubber ($GT +21.54%) will pay $2.8B in cash and stock, in order to acquire rival firm Cooper Tire & Rubber ($CTB +29.40%).

Why does this Matter?

Goodyear Tire and Cooper Tire are the two largest tire producers in the United States. The firms are third and thirteenth in terms of global sales volume. Both centered in Ohio, the deal is expected to deliver outstanding economies of scale for Goodyear.

In total, Goodyear will walk away as a company with over 50 domestic production facilities, 72,000 employees, and an expected revenue of $17.5B. Meanwhile, analysts and executives alike expect that the deal will lead to $165M in annual savings, due to the acquisition.

Goodyear believes this acquisition will allow the firm to better serve U.S. and Chinese markets- the two largest markets in the world. Executives hope the move will help Goodyear become more of a force against Japanese tire maker “Bridgestone,” and French tire maker “Michelin,” which are the two largest tire forces by volume, worldwide.

The Takeaway:

Both firms stand to benefit massively from the $2.8B acquisition of Cooper Tire & Rubber by Goodyear Tire & Rubber. Look to see how the two stocks continue to move as the deal comes closer to being executed.

– Written By Jack Dunne

– Published in MarketBites Daily Newsletter


Meet the Authors

Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.

Raymond Kanyo
Product Manager & Investment Analyst

Jack graduated from the Robins School of Business at the University of Richmond with concentrations in Marketing and Finance in 2019. Prior to joining Taylor Hoffman, he worked in high-growth B2B SaaS marketing; assisting Fortune 100 firms to improve their web performance experience. A Long Island New York native, Jack’s hobbies include passionately supporting the Mets and Islanders, and he enjoys skiing whenever he can.

Jack Dunne
Investor Education Specialist
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