CSCO – Cisco Stock Sucks, But It’s Not a Canary in the Coalmine

by Tom Taulli | December 16, 2013 12:19 pm

For the most part, the performance of Cisco (CSCO[1]) has been a barometer of the broader tech market. And if that indeed continues to be the case, 2014 could be pretty bleak. So far in 2013, CSCO stock is up a mere 4%, which compares to a 21% rise in the Dow Jones Industrial Average and a 33% move in the Nasdaq.

NASDAQ:CSCOFor those who aren’t familiar, Cisco sells core infrastructure technologies like routers and switches. These are often the first things corporations buy when gearing up for growth.

Last week, though, Cisco cut its growth targets, pointing to problems in emerging markets. CSCO stock fell to a seven-month low on the news.

Given the huge scale of Cisco, a drop-off in orders (and a drop-off in CSCO stock) is certainly worrisome.

But this time around, CSCO stock may actually be giving false signals. A few headwinds that are unique to Cisco mean the company may not be a canary in the coalmine.

Trouble for CSCO Stock

To start, plenty of the problems Cisco is facing are due to a lack of execution from the company. CSCO stock may be struggling because the company is stretched across many industries.

Meanwhile, Cisco must also fend off some tough competitors. Just a few include Alcatel Lucent (ALU[2]), Huawei, Juniper (JNPR[3]), Hewlett-Packard (HPQ[4]) and Ericsson (ERIC[5]). And there are also some unexpected players as well. For example, companies like Facebook (FB[6]), Google (GOOG[7]) and even Amazon (AMZN) [8]have been building their own networking systems.

Given all this, it really should be no surprise that CSCO stock has been a laggard.

On top of that, global politics may be a headwind for the company. Thanks to the NSA scandal, other countries may be more likely to prevent U.S. operators from selling technologies.

Of course, this may just be an excuse to protect home-grown tech companies. If anything, it could be the case in China, which Cisco alternatives like Huawei or ZTE. Still, it’s bad news for CSCO stock heading into 2014.

Interestingly enough, Qualcomm (QCOM[9]) and IBM (IBM[10]) have also warned about complications in the Chinese market … which certainly makes for bad news beyond CSCO. Let’s face it, for these tech giants to keep growing, they need to win in China.

And while CSCO and other operators will probably continue to generate substantial cash flows and pay decent dividends, it may not be enough to jumpstart the stocks. After all, if emerging markets are getting serious about pushing back on U.S. firms, it could mean a tough slog.

As we mentioned, Cisco already played down expectations[11], saying that its three-to-five year revenue growth target will be 3% to 6% vs. the prior range of 5% to 7%.

That’s definitely very ominous for those holding CSCO stock — and looking for gains in 2014.

Tom Taulli runs the InvestorPlace blog IPO Playbook[12]. He is also the author of High-Profit IPO Strategies[13]All About Commodities[14] and All About Short Selling[15]. Follow him on Twitter at @ttaulli[16]. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. CSCO:
  2. ALU:
  3. JNPR:
  4. HPQ:
  5. ERIC:
  6. FB:
  7. GOOG:
  8. AMZN) :
  9. QCOM:
  10. IBM:
  11. played down expectations:
  12. IPO Playbook:
  13. High-Profit IPO Strategies:
  14. All About Commodities:
  15. All About Short Selling:
  16. @ttaulli:

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