Why Cisco Systems, Inc. (CSCO) Stock Could Gain 30%

Cisco stock is already undervalued and the company's future plans make it a worthwhile tech investment

By Laura Hoy, InvestorPlace Contributor

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Competition in the tech space is fierce, making it difficult for long-term investors to find quality stocks to beef up that aspect of their portfolios. The hottest companies are often the most expensive and those whose share prices are waning could be on their way toward the technology graveyard. However, some solid, reliable firms have been delivering for years that are being overlooked and are therefore undervalued.

Why Cisco Systems, Inc. (CSCO) Stock Could Gain 30%
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Cisco Systems, Inc. (NASDAQ:CSCO) is one such company. Cisco stock has fallen nearly 4% over the last three months and the firm is poised to have a breakout year — making now a great time to buy.

Although it’s true that CSCO has fallen prey to rising competition in the tech space and the firm’s efforts to break into new markets like security and software are likely to be riddled with obstacles. Even after taking into account the headwinds facing Cisco stock, the company is undervalued.

The firm’s forward price-to-earnings ratio stands at 12; that’s much lower than the rest of the tech industry and sits even further below the S&P 500 as a whole. If CSCO stock was priced similarly to the broader market, the stock would be making its way toward the $40 mark.

Improvement Ahead for CSCO Stock

Not only is Cisco stock valued much lower than many of its peers, but the company’s plans are pretty impressive as well. CSCO is shifting its focus toward subscription-based services, security and data centers. That means the company is laying the foundation to create a continuous revenue stream through subscription fees. The firm is also inserting itself into some of the fastest growing sectors in the tech space, which is certainly something long-term investors should consider.

One of the best reasons to buy and hold Cisco stock is the company’s financial strength. The company’s balance sheet shows that management is keeping the firm on the right track by controlling inventory effectively and maintaining a healthy cash flow, a good sign that the firm can weather any storms as it makes its transition into new industries.

Not only will the firm’s financial backbone keep it from capitulating at every bump in the road, but it reassures shareholders that their dividend payments are unlikely to go anywhere.

Cisco Stock’s Bonus Dividend

Not only could CSCO stock rise 30% in the coming year, but the company also pays an impressive dividend. While a dividend yield of 3.44% may not sound like much, Cisco’s dividend payouts come in on the high end of the spectrum in the tech world. That means that long-term investors are rewarded with a steady income while they wait for a CSCO stock rally.

That 3.44% could be on its way up as well. Cisco is one of the firms set to benefit from Donald Trump’s plans to reform corporate taxes once he takes office. CSCO is sitting on about $60 billion overseas, all of which could be repatriated if the tax laws are reformed. That money, or at least part of it, is likely to make its way into shareholders’ pockets either through buybacks or a dividend hike.

But, with all of that said, it’s not all roses for Cisco stock, the company still has some major obstacles to overcome. The firm issued lackluster Q2 guidance, proving that it is still struggling with its transition from hardware, and many point to the fierce competition in security, data centers and networking where CSCO plans to build its business.

Bottom Line on CSCO

While that is certainly a concern, the troubles Cisco stock is facing are not unlike those plaguing most tech companies today. IT is a crowded space and competition will always be a worry, but CSCO’s financial stability and longevity are likely to help the company, and its shareholders, weather any storms along the way.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2017/01/cisco-systems-inc-csco-stock-could-gain-30/.

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