Cisco Systems (CSCO) makes IP networking devices and is a very prominent tech company that has been known as an innovator. Last week Cisco (CSCO) reported 3Q earnings which were lower than the Street's estimates and on top of that, Cisco lowered its outlook. Cisco blames lower government spending of IP products as the new Congress campaigns on cutting spending. Needless to say, the stock was destroyed, down about 20%.
As Wall Street becomes more and more bearish on Cisco, it could be time to pick up some shares at a cheap price of $19.61. Cisco is a great value play if you are looking for a top tier tech stock that is temporally seeing some headwinds. They have experienced issues in the past that they were able to bounce back after they looked to innovate their products and expand their markets.
Cisco will do as it has done before, innovate. Find a new way to market their product, expand their market more rigorously in emerging countries. That's right, Cisco has a growth rate of 12% for fiscal 2011 and 17% growth over next 5 years. Much of this growth will come from emerging markets that are looking to update servers and networks.
On a more fundamental level, Cisco has a P/E ratio of 14, PEG (growth) of .99. The PEG shows that shares of cisco are a little undervalued at the moment, and the P/E is in normal area. As far at debt goes, Cisco has total debt of $15B but the debt/equity is at 34. Essentially, what this means is Cisco has for every $34 of debt, $1 of equity. This is a bit on the higher end of the spectrum, but Cisco is a stable company that will be able to pay off the debt. Cisco has pretty solid fundamentals which is giving the stock an undervalued look at this point in time.
Trade: Buy Cisco as a long term trade. Look for the long term view and ignore the current headwinds.
Disclosure: positions held in CSCO
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