Bah Humbug: 5 ETFs For The Plunge In Oracle Shares
The Grinch has arrived a few days early, at least for Oracle (Nasdaq: ORCL) shareholders. Shares of the enterprise software giant are getting slammed after-hours following a fiscal second-quarter earnings report that can only be described as disappointing.
The company earned 54 cents a share on revenue of $8.81 billion, but analysts expected a profit of 57 cents on revenue of $9.23 billion.
"Non-GAAP operating margins increased to 45% in Q2," said Oracle President and CFO, Safra Catz, "and we expect those margins to keep growing. Operating cash flow over the last twelve months grew to $13.1 billion; that's up a remarkable 45% compared to the preceding twelve month period."
That's a nice sugar-coat and maybe necessary. Heading into trading today, Oracle had performed worse than the Nasdaq in 2011 and that's saying something because the Nasdaq was down about 5% year-to-date.
"Winners and Losers" as Social Distortion sang. Let's have a look at them as they pertain to Oracle.
PowerShares QQQ (Nasdaq: QQQ): Well this isn't a surprise. The PowerShares QQQ tracks the Nasdaq 100 where Oracle is one of the largest stocks. In fact, Oracle is the fourth-largest holding in this ETF at almost 6% of the fund's weight. Problems with Oracle equate to icing on the cake for an ETF that has recently been hampered by slack performances in shares of Apple (Nasdaq: AAPL) and Amazon (Nasdaq: AMZN) recently. QQQ would be in trouble below $54.
ProShares UltraShort QQQ (NYSE: QID): The bearish of equivalent of QQQ could be a decent trade over the next couple of days on the basis that the Oracle report will limit upside in the Nasdaq heading into Christmas. QID was down 6% today. If you can get that much in upside between Wednesday and Friday, take it and be on your way to a Merry Christmas.
Technology Select Sector SPDR (NYSE: XLK): Oracle is the sixth-largest holding in this ETF and in the wake of this ugly earnings report, now isn't the time to be value hunting with XLK. The ETF really isn't a buy until it can break resistance at $26.50, but it seems more likely that XLK has downside, not upside potential in the near-term. Go here for better ETF trades.
Direxion Daily Technology Bear 3X Shares (NYSE: TYP): We've already highlighted the dangers of making investments out of leveraged ETFs when they should be trades. So make TYP a trade. In fact, it could be a nice one on the back of Oracle. Down 9% on Tuesday, TYP could easily go up that much over the next couple of days.
Software HOLDRs (AMEX: SWH): Are you looking for an obscure ETF with heavy Oracle exposure to short? We present the Software HOLDRs. Thinly traded and not optionable, SWH is shortable and allocates more than 15% of its way to Oracle and more than 19% of its weight to Oracle's German rival SAP AG (NYSE: SAP). Not to mention, SWH is technically vulnerable on a move below $45.
Traders who believe that Oracle will rebound might want to consider the following trades:
- Long the stock, obviously. It's arguably cheap at just 11 times 2012 earnings.
- Long SAP. For some international exposure in your portfolio.
- Long QQQ. Keeps you in tech without being long Oracle directly.
Traders who believe that Oracle has more downside may consider alternative positions:
- QID, but only for a few days.
- Long IBM (NYSE: IBM). It's a more conservative tech play with a decent dividend.
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