01/07/2014 9:00 am EST



Our top pick for conservative investors for the coming year is the leading engineer of software and hardware to work together in the cloud and data centers, asserts Ingrid Hendershot, editor of Hendershot Investments.

Oracle (ORCL) reported fiscal second quarter revenues rose 2% to $9.3 billion, with EPS up 6% on lower shares outstanding. Revenue growth was driven by a 6% increase in software license updates, and product support offset by declines in hardware system, product, and service revenues.

The company's operating margin was 37% during the quarter, and is poised for expansion due to product mix changes, and leverage from investments in the sales force.

For the first time ever, Oracle generated more than $15 billion in operating cash flow over four quarters. Free cash flow increased 17% in the first half of the fiscal year to $7.2 billion, with the company ending the quarter with $37 billion in cash.

Oracle returned $6.9 billion of cash to shareholders year-to-date through $1.1 billion in dividends and $5.8 billion in share repurchases.

Over the last 12 months, Oracle has paid out 90% of free cash flow to shareholders through $1.9 billion in dividends and the repurchase of 323 million shares for $10.7 billion. With a free cash flow yield of nearly 9%, Oracle appears attractively valued. Buy.

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