During my days as a high school football player, our head coach repeated a line heard throughout locker rooms everywhere: you play for all four quarters. Certainly, you don’t give up at halftime, which is what Cisco Systems (NASDAQ:CSCO) shares have done this year. While Cisco stock gained an impressive 31% in the first half of 2019, it lost a staggering 20% in the second.
With that, the CSCO stock price is up slightly less than 7% year-to-date, a dramatic shift from earlier this year. But what especially makes this reversal of fortune so frustrating is that fundamentally, Cisco should be doing well. Obviously, the company benefits from the broader 5G roll-out. Here, the tech firm specializes in maximizing the potential of 5G through various efficiency protocols.
However, there’s a gap between potential and reality. Unfortunately for Cisco stock, the geopolitical tensions between the U.S. and China have put a lid on the underlying organization’s business opportunities.
In its fourth quarter of fiscal year 2019 earnings report, Cisco beat out its per-share profitability estimates by a penny. Additionally, management rang up $13.4 billion in revenue, just edging out analysts’ consensus forecast of $13.39 billion.
In a tight, competitive market, these results should have been cause for celebration. However, management downgraded its expectations for fiscal Q1 due to trade war headwinds, sending the CSCO stock price tumbling.
And in Q1 results, which were released near mid November, it was the same story again. Against both earnings-per-share and revenue targets, Cisco produced solid beats. However, CEO Chuck Robbins again cited macroeconomic pressures in reducing fiscal Q2 sales expectations.
Should investors avoid Cisco stock or is this narrative salvageable?
Discount Gives Cisco Stock a Certain Appeal
If you haven’t been paying attention, the negative sentiment surrounding CSCO stock over the second half of this year has mostly centered on one issue: the trade war.
To be both fair and blunt, that’s a tough situation to be in. While I’d bet that most Americans understand the long-term necessity for keeping our rivals honest, economy wise, the trade war is a tough sell. That’s especially the case for tech investments like Cisco stock. Nothing hurts the globalized economy quite like a trade dispute.
On the other hand, I’m wondering how long the CSCO stock price can keep falling on the same bad news. We get it: the trade war hurts Cisco’s ambitions in China. At the same time, this is a known headwind. Theoretically, the weak hands that felt the pressure the most have largely exited their positions.
Tactically, the risk to investors was the elevated price point. However, with Cisco stock shedding 20% in the second half of 2019, much of that risk is off the table. Therefore, the patient investor has a viable opportunity in an otherwise solid and credible organization.
Furthermore, Cisco may have some tricks up its sleeve. According to Investor’s Business Daily, management may disclose a new business at its upcoming “Future of the Internet” event: selling semiconductors.
That has positive implications not only for Cisco stock but for the major cloud computing companies like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL). All these organizations require specialized chips to run their intensive data centers.
In addition, the introduction of a fresh semiconductor competitor would put added pressure on tech firms in that space. While that’s bad for them, it’s great for the innovations sprouting from this capitalistic dynamic.
CSCO Stock’s Becoming a No Brainer
Although CSCO stock offers a contrarian case, you should recognize that further downside isn’t unimaginable. From the latest rumblings regarding the trade war, President Trump apparently has adopted a more aggressive stance.
If so, I don’t think it bodes well for the Cisco stock price nearer term. Simultaneously, we’re heading into a critical election year. Trump absolutely cannot afford to have a down economy in the run up to Nov. 3
From that angle, going long Cisco stock seems like a no-brainer. And when you tack on all the credible potential that the underlying company has toward the 5G rollout, along with the attractive pricing, you’d be crazy not to consider it. Just be ready to ride some choppiness before shares turn around.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
