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Should I Buy Cisco Systems, Inc. (CSCO) Stock? 3 Pros, 3 Cons

After a dry spell, Cisco stock is picking up momentum. But will this last?

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Cisco Systems, Inc. (NASDAQ:CSCO) has been a flop as a long-term investment. For the past decade, the return has been an awful 11%. But lately, the CSCO stock price has been getting some mojo. In fact, the return for this year is the same as for the past 10 years!

Note that the company’s CEO, Chuck Robbins, came on board in the summer of 2015 and has not wasted much time in making some big changes, such as with divesting non-core assets and investing more aggressively in growth markets like cloud computing and mobile. All in all, there are signs that these moves are gaining traction.

The competitive environment remains intense, however, and Cisco stock is feeling the pressure on the company’s main networking business. It’s not exactly easy to make the transition from hardware to software.

That means Cisco stock could be a value or a risk right now. To see, here’s a look at the pros and cons:

Cisco Stock Pros

Transformation: A key part of the growth strategy has been aggressive buying. It helps that the company has a long history of dealmaking. In other words, the company knows how to spot opportunities as well as integrate diverse cultures. There are also the critical advantages of Cisco’s global customer base, strong sales organization and trusted brand, especially when dealing with mission-critical technologies.

Yet this does not imply that the core networking business will somehow not be an important driver. If anything, the long-term prospects still look bright. According to Cisco’s research, the amount of mobile traffic is forecasted to surge by eight times from 2015 to 2020, representing a 53% compound annual growth rate. Some of the factors include mega-trends like streaming video, artificial intelligence, virtual reality and the Internet of Things.

Although, Cisco has been adapting to the swift changes in the market. To this end, the company is focusing more on software-based approaches and also subscription business models.

Strong Financials: CSCO continues to show discipline with its costs. During the summer, the company announced a 7% reduction in the workforce, translating into about 5,500 jobs. So yes, CSCO has continued to be a nice cash generator. For the latest quarter, operating cash flows came to $2.7 billion. In all, there is $71 billion in the bank. Something about this: $61 billion of that amount is in foreign accounts. That is, if Donald Trump passes legislation for lower taxes to repatriate capital — which seems like a pretty good bet — this will certainly be good news for holders of Cisco stock. The company will be able to use the resources for acquisitions, share buybacks and higher dividend payouts.

Valuation: Cisco stock looks like a good value. Consider that the forward price-earnings ratio is only about 12. Oh, and when subtracting out the cash, the multiple is a mere 6. By comparison, the forward P/E ratio for Microsoft Corporation (NASDAQ:MSFT) is 19 and Oracle Corporation (NYSE:ORCL) sports a multiple of 14 times earnings. Finally, CSCO has a decent dividend yield of 3.4%.

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Article printed from InvestorPlace Media,

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