Cisco (CSCO)

With a $150 billion market cap, has $40 billion in net cash, and throwing off $11-$12 billion a year of free excess cash flow. Selling for 9 or 10 times free cash flow. Every year the dividend goes up by double digits, and with all that cash, this dividend will double in the next 6-7 years or so. They remain as #1 in the world in each of their businesses. To buy a company like this at 10 or 11 times earnings and free cash flow, it is truly being given away for a company of this quality. Dividend yield of 3.5%. (Analysts’ price target is $33.15.)

The “Internet of Things” stock. It is really going to benefit from the increase you are seeing in mobile data traffic, which is going to increase threefold through to 2019 with traditional networking traffic, which is going to go up. They have their hands in a lot of different things. The only secular concern you have is the emergence of “Software Defined Networks”, where the hardware is being decoupled from the software. Cisco really sells products where the hardware and the software are completely integrated. If that happens, you could see a little margin pressure. They are trying to address that with their product offering. Longer-term he really likes this.

This is at the heart of the “Internet of Things”. Machines, appliances, etc. will be connected to the Internet in the next wave. This was one of the very large tech companies that was used as a source of funds in the last couple of weeks. He doesn’t think it’s fatal. The stock pulled back 7%-8% after making a new high just a few weeks ago. This is a conservative way to play the Internet of things, and is certainly one you could own. It generates tons of cash. (See Top Picks.)

He likes this because it has a strong free cash flow yield, in the 6% range. Pays a great dividend and is well run. The stock is starting to do better. This doesn’t have many competitors. He is not buying right now, but also not selling what he currently owns. 3.3% dividend yield.

Old style tech. Tremendous upside of 42%. It could come back to EBV+3 in bad markets. It is a dividend play also.

(A Top Pick Feb 27/15. Up 8.53%.) (BNN Showed “Oct 29/15” in error, so percentages may not be accurate.) They’ve been diversifying away from the meat and potatoes business, the slower growth of switches, routers, etc., but their existing business is still growing. A big part of their transition strategy has been acquisitions. They did 10 in 2015. This is still a buy.

It is a big cap name. It is in favour this year, but he does not see the growth drivers so far. They are similar to IBM. There is no lever to move higher. If you hold it, then hold it for now.

Caught up in a big transitional situation in the technology industry. What used to be done mechanically, in terms of switching, is now being done with software. If you are the biggest manufacturer in electronic switches, how do you transition yourself into the new world without losing market share? It turns out to be more difficult than people thought. Even though they had a dominant position 10 years ago, it has been losing market share, and he thinks it is a really difficult period for the stock. He wouldn’t recommend it.

You are not buying this because it is cheap. There are so many companies transitioning from old archaic businesses to the Cloud business and this is doing that as well. The difference is that Cisco’s network switching business is still making them money. Any growth that you see on the Cloud business that Cisco creates, is above and beyond the growth that is already there with their meat and potatoes business. Dividend yield of 3.32%.

He owns this because it has a good yield and has lots of growth in it. Has a great cash position. Very well-run. The great thing with this is that you have to plug into Cisco in a lot of the technology that is going forward.

(Market Call Minute.) Just a little bit stodgy for him. The new CEO is impressive, but thinks there is a lot of legacy low volume commodity type business that is going to get in their way in terms of growth.

Making a significant shift over the last few years, moving more to cloud and software services. An impressive company financially. Good dividend growth (14% this year and at least 20% next year) and a 3.4% dividend yield.

Companies like this have hit a funk. Sales are not going anywhere, and there is always another surprise. But at the end of the day, they are generating tons of free cash flow, and trying to get their costs under control. He is not attracted to the name right now. The technology space is very hard.

(A Top Pick July 30/15. Up 12.99%.) This is like the pipeline of the Internet. It doesn’t matter whether it is wired or wireless, it is going to be good for business. They are moving from a hardware side to a services side, which gives them more recurring revenue.

Technology is an area that is attractive. This, like many technology companies is trading at a discount to its long-term average PE multiple. There are reports of potential layoffs across the board. Like many others in the technology space, they are making a transition from a hard over time. An interesting one to look at. ware based business to a software business, which is generally going to be higher margin with more recurring revenue. This has been trading at a relatively low PE multiple, and if they are able to make that transition successfully, he expects you could see a PE multiple expansion.