The Cost of Owning Oracle and Cisco

  • December 31, 2005

Oracle seems to be stuck in a $12 to $14 range and both Oracle (ORCL) and Cisco (CSCO) were down a little over 11% in 2005. The days of high growth are over for both Oracle and Cisco and yet both companies do not offer any dividends to shareholders. Hence neither growth nor value investors are attracted to these stocks right now. Given the slow pace of organic growth, both companies embarked on an acquisition binge. While this strategy might pay off in the long run, there does not appear to be any short-term catalyst to help these stocks move higher.

There are three kinds of costs associated with owning Oracle or Cisco stock at this point.

  1. There could be additional downside on account of integrating all these acquisitions.
  2. There is a missed opportunity cost as shareholders could be missing out on other attractive investments because their funds are tied up in these stocks.
  3. Even if Oracle and Cisco were to stay flat in 2006, investors would end up losing money on account of the effects of inflation.

Over the next year it may be prudent to decrease positions in these two stocks provided there are no negative tax repercussions. Leave a comment if you are convinced that holding on to Oracle or Cisco is a good strategy for 2006.