Cisco: Is the sleeping giant awakening?

After a lackluster decade, this dominant technology stock is set for a strong turnaround.

By TheStockAdvisors Sep 20, 2012 11:29AM
Network cable, copyright Epoxydude, Getty Images, Getty ImagesBy George Putnam, The Turnaround Letter

Cisco Systems (CSCO) peaked at $77 in early 2000 before declining sharply as the tech bubble burst, and the stock has bounced around in the $10s and $20s for much of the past decade. It finally appears to be on the verge of breaking out of its more than decade-long doldrums.

The networking company is focused on building its market-leading positions in some of the most important technology segments in order to build profits and cash flow. Moreover, the company is committed to returning a significant portion its cash to shareholders.

Cisco is the dominant supplier in many of its markets. Its products provide the backbone for several of the fastest-growing technology sectors, including cloud computing, video, smartphones, and social networking. 

In addition to its hardware businesses, Cisco is seeing steady growth in its service offerings, which generally have higher margins.

Not only does Cisco have a broad product line, but its markets are well diversified geographically. More than 40% of revenue comes from outside the Americas. Emerging markets continue to grow in importance for Cisco, accounting for more than 12% of revenue last year.

In its quest for improved profitability, the company is cutting costs as well as growing revenue.  It has reduced worldwide headcount by more than 5,000 over the past year and streamlined its operating structure. Ithas sold off several of its consumer businesses that had been a drag on overall profits.

The company's balance sheet is impeccable, with more than $48 billion in cash and equivalents and relatively little debt. 

Cash flows are growing, and management is committed to returning 50% of free cash flow to shareholders through dividends and share repurchases. The company's nearly 3% dividend yield puts it in the top echelon of dividend payers in the tech sector. 

Cisco has been like the sleeping giant of the technology industry since the Internet bubble burst in 2000. We now believe the giant is awakening and will give shareholders a good ride in the coming years. We recommend buying Cisco stock up to $26.

More from TheStockAdvisors.com

1Comment
Sep 20, 2012 6:18PM
avatar
wasn't the price of facebook suppose to start at that price?
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

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.

126
126 rated 1
286
286 rated 2
474
474 rated 3
680
680 rated 4
626
626 rated 5
609
609 rated 6
620
620 rated 7
462
462 rated 8
304
304 rated 9
132
132 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
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.