Cisco Systems, Inc. (CSCO) Stock’s Financials Are Good, But Technicals Are Better

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After getting burned throughout most of last decade, Cisco Systems, Inc. (NASDAQ:CSCO) is taking a cautious approach to their guidance for the new year. In the second quarter of fiscal year 2017, Cisco anticipates a drop in sales due to headwinds generated by a global competitive environment. CEO Chuck Robbins referenced uncertainties in the world economy, as well as potential regulations under the incoming Donald Trump administration.

CSCO Stock: Cisco Systems, Inc. (CSCO) Stock's Financials Are Good, But Technicals Are Better

Although you can’t go wrong erring on the side of caution, Cisco might be hedging their bets unnecessarily. There are a number of technology sectors in which the networking giant can leverage its power, key among them being the Internet of Things. This is a market that’s projected to hit $1.7 trillion by the year 2020.

Furthermore, the company has a division called “IoT Systems and Software.” You can’t get any more direct than that for CSCO stock!

Understandably, with a lucrative market comes intense competition. The IoT business is unique in that it brings out an eclectic bunch. NVIDIA Corporation (NASDAQ:NVDA), Amazon.com, Inc. (NASDAQ:AMZN), and General Electric Company (NYSE:GE) are all competing in one form or another. Of course, you can’t ignore industry titans like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT).

Although that seems like a tough matchup for CSCO stock, I wouldn’t short-change it.

Arguably, Cisco is in the best position to advantage IoT, as it has the brains and the architecture. By default, the company can provide the physical connectivity through its vast networks. Also, Cisco can offer security mechanisms and standardization measures for IoT device makers.

Strong technical tailwinds for CSCO stock

All of these are wonderful reasons to consider buying up CSCO stock. However, what I like best is its technical momentum. Frankly, a fundamental story is only that — a story. The difference is whether or not investors are willing to risk money on it.

Most indicators suggest that Cisco stock is poised for greater things in the coming years.

Let’s start with the low-hanging fruit. Year-to-date, Cisco shares are up over 12%. Based on recent trends, the actual return shouldn’t be too far off from that figure. Yes, the price action has been a little choppy since the beginning of September. Nevertheless, CSCO stock is trading above its 50- and 200-day moving averages.

I’m also encouraged by the substantive gains made in the wake of the “Great Recession.” From 2008 until the end of 2011, CSCO stock returned a lousy -7%. But from 2012 onwards, it has been a different company altogether, with Cisco averaging 14% in the black. If it weren’t for a volatile 2015, the average would be much higher.

Even then, you have to love how CSCO stock just brushed the negativity aside.

Cisco Stock Broke Past a Key Resistance Level

CSCO stock, Cisco
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Source: Source: JYE Financial, unless otherwise indicated

I say this because the company busted open a long-term resistance level. In 2007, the average high on an adjusted basis was a little over $28. This is approximately the same price point where Cisco stock faltered last year. As previously mentioned, it picked itself up in impressive fashion. More importantly, shares are convincingly above the bearish ceiling.

If CSCO stock had failed, we would be looking at a double-top formation. Bearish traders would have noted that the bulls attempted to push Cisco above a psychological threshold without success. That could have led to a self-fulfilling prophesy, engendering further panic.

Fortunately, that’s not how things turned out. I would argue that with the breakthrough, CSCO stock has a clean slate. Combined with its enormous strength and financial stability, this is a company on the rise. Unless there was an absolutely compelling reason to bet against Cisco stock, investors are much safer going long.

Of course, tech is hardly a consistent and reliable sector. Innovation occurs in a heartbeat. Getting things wrong ever so slightly can trigger heavy consequences years down the road. But despite these pitfalls, CSCO stock has proven its worth. The IoT business should be an exciting era for Cisco and its better positioned than most of its competitors.

But the most important consideration is that people are buying the story. That goes so much further than any other analysis.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/cisco-systems-inc-csco-stocks-financials/.

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