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Which blue tech giant is the best bear on the market?

Oracle (ORCL 0.07%) and Cisco Systems (CSCO -0.02%) are mature tech stocks that own stability and earnings rather than aggressive growth. However, these qualities also make them attractive safe-haven stocks, as rising interest rates and other macro levels crush rising tech stocks.

Should investors buy these blue chip stocks today? Let’s take a fresh look at their business models, valuations and dividends.

The differences between Oracle and Cisco
Oracle and Cisco operate in different markets, but they are both aging companies that have expanded beyond their traditional businesses.

Oracle is the world’s largest database management company. Over the past decade, it has transformed its onsite software into cloud services that are stickier and easier to scale. It has also expanded this ecosystem with more enterprise resource planning (ERP) tools.

Cisco is the world’s largest manufacturer of network routers and switches. To move beyond these heavily commercialized markets, it is launching new wireless devices and expanding its software portfolio with more cybersecurity services and network monitoring software.

Which company is growing faster?
Oracle’s revenue growth stalled in fiscal years 2019 and 2020 (which ended in May of the calendar year) as the expansion of its cloud services failed to offset the sluggish growth of its legacy services in the market. Nevertheless, market demand for cloud services subsequently soared throughout the pandemic, and Oracle’s revenue grew 4% in fiscal 2021 and 5% in fiscal 2022.Oracle now expects its cloud revenue to grow organically by 30% in fiscal 2023, up from its 22% growth last year, and analysts expect its total revenue (including the recent Cerner acquisition) to grow 17% with revenue growth of 67%. After this major acquisition, analysts expect Oracle revenues to grow 6% and 21%, respectively, in fiscal 2024.

Cisco’s revenue grew 7% in fiscal 2019, which ended the calendar year in July as more enterprise customers upgraded their networking equipment. But in fiscal 2020, its revenues fell 5% as those improvements cooled off and a trade war derailed its sales in China. In fiscal 2021, its revenues rose only 1% as its recovery was hampered by supply chain problems.

In fiscal 2022, Cisco’s revenue grew 3% as its hardware business operated under supply chain and software constraints. Cisco is still preparing for additional supply chain headwinds during fiscal 2023, but it expects its revenues and earnings to grow 4-6% throughout the year as the pressure gradually eases. Analysts expect its revenues and earnings to grow another 4% and 7%, respectively, in fiscal 2024.
What about buybacks and dividends?
Over the past 10 years, Oracle and Cisco have declined by about 45% and 22%, respectively. For the foreseeable future, both companies are likely to continue these reverse transactions.

Both companies also pay decent dividends. Oracle currently pays a forward yield of 1.6%, but Cisco pays a much higher forward yield of 3.1%. Oracle has not consistently increased its dividend each year, while Cisco has maintained an annual growth rate since it paid its first dividend in 2011.

Which stock is the best value?
Oracle trades at 20 times forward earnings, while Cisco has a lower forward price-to-earnings ratio of 16 times. Both stocks are reasonably valued, but I think Oracle is slightly better off right now because its core business is less prone to supply chain disruptions, its cloud growth is accelerating, and its larger pullbacks will consistently drive its long-term earnings growth. Cisco is still a good value play, but I believe its valuations will remain depressed until it fully overcomes its supply chain constraints.