3 Stock Picks: ORCL, SONC, BZH

Oracle (ORCL) posted better-than-expected fiscal fourth-quarter earnings, sending shares more than 8% higher in Wednesday morning trading.

Oracle posted operating earnings of 46 cents a share, two cents ahead of Wall Street consensus. Including stock option costs and other charges, the company's earnings were 38 cents a share. The strong earnings came in spite of year-over-year declines in revenue and profits (the company reported 47 cents a share in the same period a year ago).

"We beat the high end of our total revenue guidance and we delivered the highest Q4 operating mark in our history, crossing the 50% mark for the first time," President Safra Katz said on a Tuesday conference call.

The latest results don't include the database and software company's April acquisition of Sun Microsystems, which Oracle snapped up for $7.4 billion in order to bolster its position against European rival SAP (SAP) and bring it into more direct competition with IBM (IBM).

Ross MacMillan, an analyst with Jefferies & Co., said the company's guidance, which forecast fiscal first-quarter sales declines of 1% to 4% and earnings of 22 to 24 cents a share, was encouraging, and that "the pipeline is growing faster than revenue."

William Blair & Co. analyst Laura Lederman said that bigger is better with technology.

"Oracle is one of our favorite large-cap names and should be, in our opinion, a part of any portfolio that wants or needs large-cap software exposure," she wrote Wednesday. "We believe the company is being run very well, causing others to react to its strategy of consolidating the market."

Bottom Line: Buy
Oracle has proven it can weather tough times. And this bellwether should continue to persevere as we enter a cycle that favors the tech sector.

Investors' appetite for shares of drive-in restaurant chain Sonic (SONC) grew healthier Wednesday after the company posted better-than-expected quarterly results. Shares were up 10% in morning trading.

The Oklahoma City-based company reported fiscal third-quarter earnings of 24 cents a share, well ahead of Wall Street analysts' consensus estimate of 20 cents a share.

The company said its sales remained slightly depressed, with customer traffic dropping 0.6% from the year ago quarter, and the average check size dropping 4.9%. However, Sonic said its extensive pricing changes, which included a more extensive value meal menu, paid off among budget-conscious diners.

"So we really put the dollars behind the everyday value menu to try to create awareness of it and drive traffic to our drive-ins. And we believe we have done that," Chairman and CEO Cliff Hudson said on a Tuesday evening conference call.

Christopher O'Cull, an analyst with SunTrust Robinson Humphries, wrote Wednesday that Sonic finally conceded to economic reality when it launched its first ever value menu -- a move it first resisted when the recession was looming.

"Clearly, the company is paying reparations for bad pricing decisions made over 18 months ago – compelled to offer more discounts and promote low-margin, on-board items like [its] value menu," he wrote.

O'Cull and Thomas Weisel Partners analyst Fitzhugh Taylor agreed that Sonic is now sending the right signals. Taylor said continued success of the combo meal initiative and a more balanced marketing and promotional effort was needed to stabilize the company's outlook for 2010. The trick, he says, is retaining the chain's loyal customers.

"While we do not have the sense that an immediate turnaround is at hand given the external environment, we continue to believe that Sonic remains distinctive and differentiated within the quick-service segment and that consumers’ focus on value over quality, experience and differentiation is temporary," Taylor wrote.

Bottom Line: Hold
Sonic shares are down some 40% over the past year, and any recovery will largely be dependent on a pick-up in consumer spending, which is difficult to predict at this point.

Short-sellers looking to cover their positions boosted shares of Beazer Homes (BZH) more than 7% higher in midday trading after the U.S. Commerce Department release new home sales numbers for May that were slightly worse than expected.

The U.S. Commerce Department said sales of single-family homes dropped by 0.6% in May to a seasonally adjusted annual rate of 342,000 compared to the prior month.

David Urani, an analyst with Wall Street Strategies says even not-as-bad news on the overall housing sector will likely trigger moves in a volatile stock such as Beazer.

The absence of really bad news on the housing front put pressure on investors who hold Beazer's shares short, prompting them to sell off their positions and drive prices rapidly higher. As of Wednesday, 24.5% of Beazer's shares were held short, a very high ratio that reflects worries about the company's fundamental financial health. Standard & Poor's Ratings Services last week cut Beazer's credit rating further into junk status.

"If anyone gets so much as a whiff that maybe it's not going to go bankrupt, it's going to jump," says Urani, who notes Beazer still has to deal with a large number of foreclosures in several of the most overbuilt housing markets in the country, particularly in California, Arizona, Nevada and Florida. "I think you'll continue to see more write downs there," he says.

Bottom Line: Sell
Individual investors should go nowhere near Beazer, which won’t trade on fundamentals for at least 12 months, or until foreclosure inventories pose less of a financial threat.