Cisco (CSCO)

Trying to make the move from hardware to software. It has decent free cash flow, but is not growing fast enough, so would never make his list of “wanting to own”. They are going to struggle because there are bigger operators in that space. Instead of expecting huge growth and a huge multiple, his guess is that is it going to be more like a commoditized growth rate in the 5%-10% range, if that. If anybody overtakes them, they’re going to have to struggle to keep pace.

A solid technology company that is still run by its founder. These great companies, where you have a visionary founder that is still with a company, do very, very well. This company has had some short term disruptions with a couple of newer companies that are taking some of the higher end stuff, but this company dominates the Internet business, in the sense of the switches, etc., and has enough money to out-engineer anybody that wants to compete with them. It is like buying General Motors in 1955. They own the market and are going to own it for a long time yet.

This probably hit its peak 15 or 20 years ago. It was one of the leaders in computer systems, switches and routers. Since then, it has struggled to find its place. It ran into stiff competition, and then fell behind. There have been resurgences from time to time, but it really hasn’t made any headway for many years. The stock has moved, but more on an emotional/sentiment basis.

(A Top Pick May 13/16. Up 26.1%.) Has taken his profits. Looking at their business today, he is not sure exactly which direction they want to transition to. It gives a decent dividend yield. Doesn’t think you will go wrong buying at these prices.

Finds it difficult to get positive about this. They have fantastic brands that are globally recognizable, but feels the deck has been unfairly stacked against them. Over time, there has been more of a movement towards software defined networking. Something that turns him off a little is that a lot of their customers have decided that instead of buying from Cisco, they are going to build the kit themselves. One of the biggest trends in IT going on right now is the customer deciding to become a capital goods producer.

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.