Cisco Systems (NASDAQ:CSCO) could again give investors a reason to pay attention to the networking giant. Cisco stock has not received as much attention by investors over the last few years amid the focus on cloud, artificial intelligence (AI), and more trendy tech applications.
Now, investors may have a reason to take a second look at CSCO stock. As the internet makes the transition to 5G, CSCO could become again a more prominent name in tech as it returns to a leadership role in the industry.
Will CSCO Return to Dot-Com-Era Prominence?
About twenty years ago, Cisco stock helped to lead the dot-com boom. A run-up in the late 1990s led to the company briefly achieving the world’s largest market cap in 2000, taking it to an all-time high of $82 per share.
However, after the dot-com boom gave way to a bust, Cisco stock went on to lose more than 90% of its value and gained little traction after that drop. CSCO fell out of favor and out of the headlines as it transitioned from a growth stock to a more conservative investment. In 2011, it began a move from just above the $13 per share range to about $48 per share today.
Still, this bull trend has suffered some hiccups. Amazon’s (NASDAQ:AMZN) entry into the networking business, as well as lower guidance caused the stock to slide in August. As its current price of about $47 per share, it trades at about 17% below its 52-week high.
However, CSCO has still risen by about 14% for the year. Moreover, I think the new Cisco stock should draw more attention from more risk-averse investors. Despite competitive fears from Amazon and others, the company offers some advantages. It derives only about 3% of its revenue from China. Furthermore, it has heavier exposure to other emerging Asian markets such as India, which has not become a major target of tariffs.
“Internet of the Future” Could Take CSCO Stock Higher
Furthermore, CSCO stock could see a return to prominence due to 5G. Cisco has bet heavily on the internet of the future. Consequently, it just released its next-generation networking internet platform called Silicon One. How this competes against the likes of Juniper (NYSE:JNPR) or Broadcom (NYSE:AVGO) is not yet known. Still, it can support 5G, an essential attribute as many believe that increased 5G traffic could overwhelm current networks.
Cisco stock also reflects the attributes of an equity that will attract risk-averse and income-oriented investors. This is a far cry from its heyday when Cisco scoffed at the idea of paying dividends. Today, it not only introduced a payout in 2011, but it also increased the dividend every year since. This year’s annual payout of $1.40 per share takes the yield to just over 2.9%.
Also, the company, once known for its elevated multiple, now trades at a forward price-earnings (PE) ratio of about 14.1. Earnings growth levels of 4.5% this year and 4.9% the next will probably not excite investors. However, analysts predict that profit increases will average 6.99% per year over the next five years. If this forecast holds or moves higher, it could take Cisco stock higher with it.
The Bottom Line on Cisco Stock
Cisco may return to a more prominent leadership role in the tech industry. The company has spent most of the last 20 years transitioning to a more conservative investment. As few paid attention, it spent most of the 2010s in a steady growth mode. Despite this move higher, it trades at only about 14.1-times forward earnings. Now, it could play a critical role in the coming years as its customers upgrade their networks to handle 5G-level traffic.
Cisco stock does not come without risk. It fell during the late summer as Amazon entered the networking business. Moreover, it will still have to compete with Juniper, Broadcom, and other networking firms.
However, 5G still presents an opportunity for more rapid growth. Also, investors can receive a payout at 2.9% and rising while they wait for the recovery. Although I do not expect the growth levels of the 1990s, today’s Cisco stock looks more like a reasonably priced income and growth play.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
