THOMAS VILLALTA
CHIEF INVESTMENT OFFICER
JONES ASSET MANAGEMENT

COMPANY: Oracle
TICKER: ORCL (Nasdaq)
PRICE: $14.50
52 WEEK RANGE: $11.75–$15.21
MARKET CAPITALIZATION: $77.35 billion

Thomas Villalta is the chief investment officer at Jones Asset Management. Oracle is headquartered in Redwood City, Calif., and employs about 55,000 people. Mr. Villalta spoke to Katharine Herrup of The New York Sun about why Oracle is a good stock even though the technology sector has been out of favor.

What does the company do?

They are one of the largest software companies in the world. They manufacture only business software for databases and middleware.

Who does it compete with?

Other big players are SAP AG, which is German, IBM, and Microsoft.

Why do you like the stock?

Valuation is our primary concern. Oracle is part of a larger group of technology stocks like Intel and Microsoft. These companies have not done well since the late 1990s from the standpoint of share price appreciation.At the same time, Oracle has continued to execute on its strategy and grows its earnings. Revenues have gone to $10.13 billion from $8.8 billion and at they end of fiscal year 2005 they have gone up to $11.8 billion. It doesn’t sound like a big jump, but we had a fairly sizeable recession in business.The most recent quarterly revenues are up 25% from a year ago and over the fiscal year the revenue grew to $14.38 billion. So you’ve had a period of time where the stock price has gone down substantially and then comes back up a little bit, but you’ve had a company that has operated and grown fairly systematically.

When did you buy Oracle stock?

We bought this stock in late May.

Why did you recently decide to buy it? What is the opportunity?

In the last two years Oracle has spent about $20 billion on two large acquisitions — PeopleSoft and Sibel Systems. They made about 20 other smaller acquisitions over this time period. Certainly these acquisitions have created complexities and uncertainties, and I think investors as a whole abhor uncertainty. In addition to that, technology is certainly not a well-liked sector. I think that the tech stocks in general remain unloved partly due to the overhang from the crash of the tech market in the early part of this century, but you have some tech stocks that have traded at very reasonable multiples like Oracle. It’s trading at 16 times forward earnings.That’s a very reasonable valuation for what remains an above average growth company.

The company strategy is on the right track. The company is gaining market share in all of its product lines.They are taking these products from the companies they bought and are trying to fuse it with their products.

What do you think the stock is worth?

We think it’s worth more than $14.50 a share. Our near term target is $19 within the next 12 months. We are looking at the value of this company. It is still well below what we find the intrinsic value of the company to be.

How do you expect Oracle to perform going forward?

I think they are executing very well right now. With every quarter that advances going forward we will get greater and greater confidence with their execution, and the market will become more confident with Oracle.They are certainly the market leader for databases in the nation, and some of their revenue comes from outside of the United States.

What are the risks?

The integration of the various acquisitions they made is one of the bigger risks. They also work in a very big field — IBM, SAP, and Microsoft are all formidable competitors. As they begin to take market share, the competition may try and change their strategies in order to better compete. Organic growth for Oracle has to continue to be there as well.