When it comes to domestic, mature large- and mega-cap technology stocks, there’s a lot to like. Many of these companies continue innovating, have significant, new opportunities for increased market share and growth and are among the biggest generators of free cash flow in America.One large-cap tech name is Cisco Systems (NASDAQ:CSCO). CSCO stock offers investors a strong balance sheet, a compelling dividend yield and the ability to grow its dividends, something the company has done for seven consecutive years.
For example, over the last few weeks, boring should have been beautiful for many sectors, but CSCO stock has fallen 0.3% in the last month and is down 1.25% in 2020.
Hope Burns Eternal
In fairness to Cisco, there are some reasons to consider buying CSCO stock, particularly for long-term investors. Among its positive catalysts are the huge growth of 5G and the Internet of Things (IoT). As the largest seller of networking gear, Cisco is well-positioned to capitalize on the growth of 5G infrastructure. One Cisco executive believes his company is the world’s most important vendor of 5G equipment.
“Jonathan Davidson, Cisco GM of service provider networking, said when mobile carriers are building their 5G networks they have to select vendors in three key areas: They have to pick a radio vendor; they need a backhaul vendor to rebuild their network because the current network can’t handle the 5G speeds; and they need a 5G core vendor,” reports Fierce Wireless.
Cisco sells both backhauls and core 5G products. As for IoT, that represents another significant, longer-term opportunity for the company. By 2030, about 500 billion devices will be connected to the internet, according to Cisco.
“The IoT is a critical part of business strategies going forward,” Cisco stated. “Based on an IDC study of 2300 executives in 15 countries, 48 percent of those surveyed have already deployed IoT solutions, and 58 percent said that the IoT is strategic to their business strategy.”
The IoT market is still in its early innings, but its growth is expected to be rapid. Morphing from a $190 billion market in 2018, it could be worth north of $1.11 trillion by 2026.
“Various industry forecasts project that, by 2020, there will be around 50 billion smart devices connected to the Internet of Things (IoT), helping to engineer new solutions to societal-scale problems such as healthcare, energy conservation, transportation, etc.,” according to Purdue University. “These smart devices (networked embedded systems) exist everywhere around us – in everything from small devices such as biomedical implants, networked sensors, and smart cards, to larger devices such as personal computing devices and home electronics/appliances, and even in very large systems such as automobiles, aircraft avionics, and missile flight control systems.”
The Bottom Line on Cisco
The 5G theme could be rewarding this year and the same could be true of IoT over time, But the recent price action of CSCO stock suggests investors aren’t bidding up the shares based on these longer-range concepts.
This year, Cisco needs to prove to investors that it’s capable of exploiting the aforementioned trends in a way that benefits its shareholders. Until that happens, there are still more compelling opportunities than CSCO stock. among older, mega-cap technology names.
As of this writing, Todd Shriber did not own any of the aforementioned securities.