Cisco Systems (NASDAQ: CSCO) has been one of the all star tech stock for a very long time. Over the past two-plus decades, IT networking giant Cisco has worked its way up from Silicon Valley start-up to Dow Jones Industrial Average component. In fact, it’s a safe bet that if you’re reading this now, you either own or at one time have owned CSCO stock.
The prominence of Cisco, both as a company and a stock, makes it a key technology and general market bellwether that every investor needs to keep tabs on. So, as we head into the latter half of this volatile 2010, which way will the Cisco Kid’s shares go? Here are five reasons why the next ride for CSCO will be higher.
Cisco Earnings Shine. On May 12, Cisco reported stellar earnings for its fiscal third quarter ended May 1. The company logged a 69.2% jump in earnings to $2.2 billion, or 37 cents per share, from $1.3 billion, or 23 cents per share, in the same quarter a year ago. Excluding one-time charges and other costs, the Cisco’s earnings reached 42 cents per share. Consensus forecasts called for earnings of just 39 cents per share. Sales also rose in fiscal Q3, jumping 26.8% to $10.4 billion, from $8.2 billion one year ago. The numbers prompted CEO John Chambers to claim that this “was probably the strongest quarter in our history.”
CSCO Stock Going Strong. Mr. Chambers also wanted Wall Street to know that in addition to fiscal Q3 being one of Cisco’s strongest quarters, the company also is on track for more great results. “We witnessed a return to strong balanced growth across geographies, products and customer segments that we haven’t seen since before the global economic challenges began.” Chambers added that, “It is clear that our game plan for how to handle economic downturns is hitting on all cylinders.” When a CEO not normally prone to boasting utters this type of confident assessment, investors should take note.
Corporate IT Spending Surging. Macro trends always matter when assessing a stock’s future, and that’s particularly true with companies in the corporate IT space. Fortunately for Cisco, corporate IT spending metrics continue to improve. According to the ChangeWave Alliance Research Network’s latest corporate IT spending survey, there has been yet another uptick in companies willing to lay down capital on IT infrastructure. The survey shows a planned spending increase in Q3, which represents the sixth consecutive quarterly improvement for this key indicator.
Cisco Pushing the Product Envelope. Cisco has been innovating in the IT networking space for decades, but now it has plans to tackle the tablet-style computing space. The company just announced it is developing the Cisco Cius (pronounced “see-us”) tablet-style computer, a product it says is aimed at business customers and not consumers, as the consumer space is largely the province of Apple Inc. (NASDAQ: AAPL) and its iPad. The company claims the portable device will be tailored for communication-related applications such as high-definition video and videoconferencing. Features include front and rear cameras, a seven-inch display and connectivity via Wi-Fi or cellular networks. Think of it as an iPad on steroids—and one aimed at serious corporate computing needs. Customer trials of Cius are expected to begin in the third quarter of 2010, with general availability in the first quarter of 2011.
Cisco a Smokin’ Buy. Now, with all of the aforementioned positives going for Cisco, it may come as a surprise that traders haven’t shown the stock much love since the shares hit a 52-week high in May. Despite strong earnings and improved macro metrics, CSCO has been caught up in the recent selling wave. The stock still trades below its 50-and 200-day moving average, but it is now well off its July lows. With the shares now trading just north of $23, the smart money is likely to soon realize that CSCO is a smoking buy—and that means now is your chance to pick up the stock at a fantastic price.
As of this writing, Jim Woods did not own a position in any of the stocks named here.
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