February 10, 2011
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of the once-invincible Cisco (Nasdaq: CSCO ) fell 14% today, after earnings and outlook left investors wondering whether the company's best days were behind it.
So what: Non-GAAP earnings per share of $0.37 beat estimates of $0.35, but falling margins and a weak outlook are weighing heavily on the stock today. Shares reached a new 52-week low, mostly on concerns that the 62.4% margin Cisco achieved last quarter could keep eroding as competitors like Juniper Networks (NYSE: JNPR ) pressure its prices.
Now what: With analysts and investors panicking as if Cisco were going under, I'm taking a contrarian look at today's drop. Cisco still has $40.2 billion in cash, cash equivalents, and investments, giving investors some downside protection and plenty of ammunition for growth. And let's not forget that business still commands 15% net margins, which most companies would envy. With everyone jumping off the Cisco train today, I'm going to buy the dip. Long-term, I think we'll regard this as a great value opportunity.
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