CSCO Stock – 5 Reasons Cisco Systems, Inc. is a Strong Buy

by Jeff Reeves | August 15, 2014 6:00 am

Cisco Systems, Inc. (CSCO[1]) is one of those dead-money tech stocks that gets a bad rap for a good reason. While the S&P 500 has roughly doubled in the last five years, CSCO stock is up a meager 15% in the same period.

You’d think with the continual drumbeat of negative Cisco headlines — such as the recent news that it will lay off another 8%, the fourth consecutive bout of summer layoffs[2] for the tech giant — the downtrend would continue.

Except CSCO stock has actually outperformed year-to-date in 2014, even after today’s selloff.

I actually think that Cisco is a decent long-term bet for investors right now even amid some of the bad news that’s out there.

Here are five big reasons to like CSCO stock now:

Business Sentiment: There are a host of broad indicators that the economy is picking up, from the brisk Q2 GDP numbers to the lowest level of unemployment since late 2008. But particular to enterprise technology, small business sentiment rose in July[3], with a big gain among firms saying the environment is ripe for expansion and growth. The increase in sentiment means more enterprise sales and IT spending as a result.

Right-Sized Workforce: The layoffs of about 6,000 workers obviously isn’t seen as good news to those getting the pink slips. However, the constant attrition at CSCO should be seen as a sign that the company remains willing to do what it takes to streamline operations instead of making excuses for a bloated outfit.

Expectations and Sentiment: Don’t forget that even as Cisco announced the cuts, it also beat expectations[4] in its latest earnings report. Sure revenue was flat and continues to be challenged, but Wall Street has all but abandoned hope of any significant growth in CSCO stock. That makes even a modest surprise meaningful. And with a bargain valuation of just 10.7 times next year’s earnings, it isn’t like investors are paying a huge premium for this tech giant.

Dividends: With a yield of 3% at current pricing, Cisco Systems, Inc. offers a good payout now. Also consider that distributions have tripled from 6 cents quarterly in 2011 to 19 cents currently — yet still only represent about 34% of next year’s projected earnings. This is clearly a decent income investment for the long term.

Cash and Stability: Oh yeah, CSCO stock also enjoys some $50 billion in cash and short-term investments to backstop those payouts, too. Throw in almost $13 billion in operating cash flow last year and the strength of Cisco Systems, Inc. becomes clear in the balance sheet.

Jeff Reeves[5] is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.[6] As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com[7] or follow him on Twitter via @JeffReevesIP[8].

Source URL: https://investorplace.com/2014/08/csco-stock-cisco-systems-inc/

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