Cisco: Cash is king

This cash-rich tech company is well positioned to benefit from rising interest rates.

By TheStockAdvisors Jul 8, 2013 8:55AM

The Cisco Systems International BV headquarters in Amsterdam © Jock Fistick/Bloomberg via Getty ImagesBy Chuck Carlson, DRIP Investor


"Cash is king" is one of those sayings that investors throw around as a market "truism" that isn't always true.


In the low-interest-rate environment that has existed in recent years, companies with lots of cash have received investor scorn for having such a large unproductive asset on the balance sheet. Of course, cash becomes more attractive to investors if returns on cash improve, which means higher rates.


And the good news (or bad news, depending on whether you have lots or little cash) is that interest rates are rising.


While rising rates are not necessarily good for bonds or stocks, one way to hedge equities against higher rates is to own companies whose balance sheets are positioned to benefit from higher rates.


Those would be companies with lots of cash, especially relative to debt levels.


One of my favorites is Cisco Systems (CSCO). The company's net cash per share represents nearly one-quarter of the stock price.


Cisco is one of several technology companies that generates prodigious amounts of cash. That cash flow has helped Cisco more than double its dividend since 2012. The stock currently yields nearly 3%.


The company has beaten earnings estimates in each of the last four quarters. Cisco trades at less than 13 times the consensus fiscal 2013 earnings estimate of $2 per share.


And when you wash out the cash, the stock's multiple drops to less than 10 times earnings. The stock has performed better in recent trading and should be one of the top performers in the tech sector in the second half of the year.


More from TheStockAdvisors.com

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

120
120 rated 1
268
268 rated 2
439
439 rated 3
709
709 rated 4
641
641 rated 5
609
609 rated 6
640
640 rated 7
516
516 rated 8
272
272 rated 9
152
152 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION10
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.