Year-to-date, Cisco (CSCO) is up about 17% to only slightly underperform the market, so you may be inclined to think that this enterprise tech stock is a decent buy — particularly with its roughly 3% dividend yield.
However, enterprise tech in general hasn’t had a great year in 2013 amid soft business spending, with IBM (IBM) and Oracle (ORCL) both actually in the red year-to-date. And after IBM just dipped on ugly earnings including very soft performance in Asia, it doesn’t bode well for CSCO.
Cisco doesn’t report earnings until November, but in August the company missed the mark slightly on guidance with projected revenue growth of a mere 3%-5%. And profits are still being juiced by efficiencies more than anything else, with another round of layoffs trimming 4,000 workers from Cisco — or about 5% of its workforce.
Cisco is admittedly in much better shape than it was in 2011 after some recent restructuring, but it’s important to know that a 3% dividend and decent profits propped up by layoffs aren’t reason enough to stick with CSCO when there are other investments out there. The stock has rolled back quickly from its 52-week high in August, giving up 14% in just two months, and investors should expect continued trouble ahead as enterprise tech remains soft in this challenging economic environment.