Cisco Systems, Incorporated (NASDAQ: CSCO), is a technology, networking, and communications company headquartered in San Jose, California. Cisco, which was founded in 1984 by Len Bosack and Sandy Lerner (two people who, interestingly enough, are married), trades for $19.66 with a market capitalization of $105.64 billion as of January 21st, 2012. Back in August of 2011, the company’s stock value hit a 52-week low of about $13.70 per share; however, since this low point, the stock price has steadily climbed to where it is now while experiencing its most significant growth through October of 2011. Investors should be reassured: this company is a winner.
Though Cisco only recently began paying a dividend ($0.24, or 1.2%) to its shareholders, it is still considered to be a fairly safe income stock for investors. As of January 27th, 2012, Cisco was referenced as a strong income stock by Market Watch author Jonathan Burton (http://www.marketwatch.com/story/10-income-paying-stocks-that-beat-the-crowd-2012-01-27?pagenumber=2). Sure enough, the company’s small dividend makes it an attractive buy: while a larger dividend could suggest an unstable, overly-volatile nature in the company, a modest dividend, paired with a growing stock, shows that the company is willing to attract investors while maintaining a healthy level of confidence. From where the company was in August, it has certainly gained ground, as investors have gained about $6 per share in under 6 months.
Furthermore, back in November of 2011, Cisco experienced a growth spurt (although it was offset by a loss later on in the month) following its first quarter earnings report. According to an article by Zacks Investment Research, though the company lost 3.82% during that day (a day in which the NASDAQ dropped 3.88%), it later gained over 2.61% after a confident earnings report (http://seekingalpha.com/article/306920-cisco-soars-on-solid-q1-results). The article details earnings from that quarter, which saw enormous, fast-paced gains from Cisco: revenue from the company’s high-end revenue was up 4% year over year; high end orders, as a whole, were up 11%; new products saw a 16.3% year over year revenue increase for the company; and total orders had increased 13% for the year. This article points out that the later part of 2011 was a generally good time for Cisco, and there is the distinct possibility that the company could hit $30 in the future.
In the article “Why Cisco’s Stock is Heading Toward $30” by Cameron Kaine, the author states that technology is, once again, a safe industry in which to invest; moreover, the author references networking as the safest area, partly due to the incredible bounce-back effect that Cisco has had over the past few months (http://seekingalpha.com/article/320620-why-cisco-s-stock-is-heading-toward-30). Also, as far as competition goes, Cisco allowed other companies such as F5 Networks (NASDAQ: FFIV), Juniper (NYSE: JNPR), Hewlett-Packard (NYSE: HP), and Riverbed (NASDAQ: RVBD) to “encroach on its market share” because the company was trying to operate a growth stock without actually growing in early 2011. Yet, in the summer of 2011, Cisco CEO John Chambers decided to “trim the fat” by offering shareholders a modest dividend and laying off 9% of its workforce in order to save $1 billion. Thanks to these decisions, investors were more willing to back Cisco later on in the year.
In a December 7th, 2011 conference call, Chambers insisted that the company is experiencing positive growth, particularly at the multinational level (http://seekingalpha.com/article/313957-cisco-systems-inc-shareholder-analyst-call). China grew at 27%, Mexico grew at 29%, and Brazil grew at 28%. Furthermore, Chambers said that the company will grow in Europe, and that he will shift part of his focus to changing the company’s current situation in India to make it a more attractive—and therefore more profitable—option.
Cisco’s competition is not too daunting. Juniper Networks, which has been in a downward slide since this time last year, only enjoys $11.4 billion in market capitalization as of January 31st, 2012, so it is not a serious threat to Cisco at the moment. Additionally, Riverbed Technology, which has a market capitalization under $4 billion, is a growth stock that cannot threaten Cisco for a great deal of time; this fact is made more evident by the company’s own, decreased projections for the coming year (http://stocks.investopedia.com/stock-analysis/2012/Riverbed-Falls-Out-Of-Bed-RVBD-CSCO-CTXS-FFIV0130.aspx?partner=YahooSA). F5 Networks also has a market capitalization under $10 billion and does not seem to be going anywhere as a growth company. Hewlett-Packard, of course, had a tumultuous, disappointing, and disastrous past year from which it has only started to recover, though its dividend, which is slightly greater than Cisco’s (1.70%), could help attract some new investors.
The bottom line is: Cisco is on an upward swing. Though the company had a disappointing time last winter and spring, it is gaining positive ground and becoming a more competitive, attractive, and larger communications company. Cisco is a recommended buy, as the stock should see even more significant gains as 2012 progresses.