Business & Real Estate
- Published on Wednesday, 02 July 2014 01:03
- Written by Clyde Noel
With the first half of the year gone, Wall Street analysts are looking for a big rebound in the second half. Earnings reports start arriving this month, and investors expect second-quarter profits to rise 5.4 percent over a year ago.
The Dow Jones industrial average reached nearly 17,000 last quarter, and the S&P 500 is only 40 points from 2,000, up 5 percent for the year. Even with daily market ups and downs, the next two quarters look favorable.
Several factors are driving stocks toward new milestones. Manufacturing is expanding at a positive pace and the service industry is growing, prompting employers to add to their payrolls the past month and a half. Such moves lead to corporate profits and additional jobs that put more money in consumers’ pockets.
The main problem for investors is the uncertainty surrounding the situation in Iraq. Escalating violence in the region has investors concerned that the country could erupt into another civil war and disrupt oil prices.
Two local stocks are in the news.
• Oracle Corp. (ORCL; $40.64) last week announced fourth-quarter earnings that missed analysts’ estimates, even though the company’s revenue from software used in cloud computing rose by 25 percent. Oracle moved to improve its stagnant sales by purchasing MICROS Systems Inc. for $5.3 billion.
MICROS offers a range of software and hardware services through rapidly growing cloud solutions that manage hotel, food and beverage operations, and some retail outfits. MICROS’ annual sales totaled $1.27 billion last year.
Cloud, mobile and social data are impacting every industry and encouraging them to modernize and be more effective – more than 6,600 MICROS employees will help Oracle achieve such objectives. Augmenting Oracle’s software and growing computer business, the acquisition should provide a more thorough introduction to cloud solutions.
Oracle is a solid company with good technology and a chief executive with drive and ambition. It has purchased more than 100 companies in the past 10 years, including Sun Microsystems Inc. for $7.4 billion in 2010. Oracle’s most recent annual sales totaled $38.2 billion, and profit last year reached $10.9 billion.
The stock is cheap, and numerous brokers have suggested buying shares on a dip. Seven brokers deem Oracle stock a strong buy. The median target price is $46, with a high of $50.
• Lam Research Corp. (LRCX; $67.51) reached a new lifetime-high stock price last week that impressed brokers watching the tape – 20,748 shares were traded to hit the new high. The average volume for Lam has been 2.2 million shares per day over the past 30 days.
The Fremont-based Lam Research designs, manufactures, markets, refurbishes and services semiconductor-processing equipment used in the fabrication of integrated circuits.
The company is forecast to nearly double its annual earnings per share for the year. On average, expect $4.40, up from $2.22 last year. For the current quarter, Lam expects revenue between $1.19 billion and $1.29 billion.
Spending on semiconductor manufacturing equipment will increase this year as tech companies gain confidence in the global economy and seek cutting-edge solutions for making chips.
With strong earnings growth and other driving factors, Lam stock has surged by 26.09 percent over the past year and outperformed the rise in the S&P 500 index. The stock currently yields a dividend of 1.2 percent and a beta of 1.21, which is low.
Among analysts reviewing Lam Research stock, 13 rate it a buy, two a hold and none a sell. The median target price is $67, with a high of $80.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks.