By 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.

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