Cisco (CSCO)

Facing some structural challenges with a couple of their businesses. They are trying to switch. When having conversations with clients, it’s not “do you want to buy some switches”, “do you want to buy some routers”, it’s “what are your issues and let’s see how we can solve them” and bundling it into more of a service type of contract. This goes to recurring revenues and higher margins, etc. Feels that concerns have eased over the last couple of years. Every year they keep executing on their strategy, and it is going to get better and better. As we go down the road, we’ll see a higher multiple on the stock.

You might want to add if it pulls back a little. A pretty well positioned company if you consider the Internet of things and technology becoming more embedded in our everyday lives. The number of devices connected to the Internet could potentially exceed 25 billion to 50 billion over 5-10 year timeframe, and this company is really going to benefit from that.

He likes this. As far as network deployment, they are still in the thick of things, central to everything that is going on. It had a slight correction after the last quarter after coming out with a fairly dour forecast.

He likes this stock. Has used it in his pools in terms of selling Put options against it, because it is one of those stocks that is normally relatively stable. He would consider writing a Put option out to September/October. The bottom line is, he is not wildly bullish on the company, but thinks it is probably not going to go a lot lower.

He likes this here. This is a case of old tech which, a generation ago, turned up their nose at dividends, but have now got religion in terms of turning cash back to the owners of the company. Their dividend growth rate over the last 5-7 years has been one of the strongest of any stock in the Dow. The bad news is that as the tech industry continues to evolve, some of the old switches, etc. they are selling to telcos, are not in the same kind of demand that they were. Given the current valuation and its dividend, this is a good bet.

(A Top Pick March 17/16. Up 17%.) Sold this recently. They are still undergoing a move from the traditional business, which is still making money, but they have been very aggressive in making acquisitions.

This has a very strong seasonality. There are 2 periods of seasonal strength. October through until January and April through until the middle of July. Recently, the stock has been in a trading range and broke a key support, establishing a downward trend, and is underperforming the market.

A big leader on routers, switches, and also moving towards the Cloud and into security. The last quarter, the US hyper focused on growth, numbers were a little disappointing so it sold off. Feels this is great valuation. They have a lot of cash. If you are patient and a long-term holder, he would continue holding this.

Valuations are getting slightly rich in terms of their PEG ratio. Their forward PE is trading at about 13X earnings. The growth rate has come down to 6%-7% or so. A little bit expensive relative to the higher growth type of names. (See Top Picks.)

A kind of “steady as she goes” company relating to Internet infrastructure. Don’t expect dramatic growth, but it pays a good dividend yield. Going forward, all the wireless, technology, routers and switches that are needed for the backbone will grow, but will be slower than in the past. Well-run company and great balance sheet, but you can find other companies exposed to the Internet that would be faster growing.

There is a split right now in the technology space. If you think of Cisco, Intel, and even IBM, they are old legacy businesses and are starting to drop off the vine. It is commoditized and they are not making much money off of it. They are desperately hurrying into the tech side of the business. With this one, you are getting away from the set-top boxes, and getting into Cloud and other services. Everybody is up in the Cloud right now and you are starting to get commoditization on prices, which is not going to help this company over time. If they start to see a slowdown on their upscale business, then of course, with a slowdown in the hardware side, it is going to hurt. People are investing for the yield, and he thinks there are better tech stocks out there. 3.7% dividend yield.

(A Top Pick May 24/16. Up 23%.) This company, throughout its history, has done a good job of changing with the times, and it is doing that now, morphing into services into more of a recurring venue business. There is still skepticism on whether they are big enough, and how long that transition is going to take. Feels that has been keeping a lid on the valuation. She feels there is more upside on this.

It has an interesting chart. It has been banging up against 2.5 times book value for some time and has not been able to break out. If it does, then it could have quite a run. Over $35 you might get a decent move. He is watching it quite closely. It is close.

In the heyday of the 2000 timeframe this was a growth stock. We have ended up with 2.5 players, with the biggest opportunity in the developed markets. China is a huge market on the back of mobile growth, but thinks QUALCOMM is winning that. The opportunities for this company are in other markets, but he doesn’t think it has legs. A very cash rich story, so it could be a dividend growth story. If looking for a reasonable attractive valuation with a dividend that can grow over time, this is one to look at.

We are in the early stages of this theme and CSCO-Q is very well positioned. Chinese preference for a North American vendor could be a real benefit to CSCO-Q.