Cisco Systems (NASDAQ:CSCO) designs, manufactures, and sells Internet protocol-based networking and other products related to the communications and information technology industry worldwide. It offers routers that interconnect IP networks for mobile, data, voice, and video applications; switching products, workstations, IP phones, access points and servers; application networking services; and home networking products. The company also offers products for security, storage area networking and collaboration, plus video connected home products and wireless systems.
While CSCO disappointed with its latest earnings announcement, especially on guidance, the subsequent reaction has been overdone. The stock has dropped more than 12% from $19 to under $17, and now sports a very reasonable trailing P/E of nearly 12, with a forward P/E under 10. CSCO also has nearly $9 per share in cash, which puts its ex-cash multiples at bargain basement levels.
While growth has most certainly tempered, CSCO still is growing at a 6% pace. The stock also has a nearly 2% yield, which is equivalent to 10-year U.S. Treasuries. While the upside might be somewhat limited over the near-term, at these levels think the downside also is limited, especially given the cash hoard.
I look for CSCO to wander aimlessly for the next few months, with a slight retracement back to the $18 level by July expiration.
Based on CSCO’s closing market price of $16.50 for May 11, 2012, and using a target price of $18, and a target date of July 20, 2012, option strategies to consider include buying a July call, buying an August call spread, selling an August put spread, or using another options strategy that best fits your trading style and risk-return objectives.
For the full details on this trade, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.
Create your free login, and get access to the details about these CSCO options trading strategies by visiting TradeBuilder here.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities.
