Cisco Shares Plunged: What You Need to Know

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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.

Interested in more info on Cisco? Add it to your watchlist.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Juniper Networks is a Motley Fool Big Short short-sale selection. The Fool has created a bull call spread position on Cisco Systems. Motley Fool Alpha has opened a short position on Juniper Networks. Motley Fool Alpha owns shares of Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (18)

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  • Report this Comment On February 10, 2011, at 4:07 PM, TheDumbMoney wrote:

    I bought the dip, got in around $19.02/share. We shall see. I was adding to a position I started at around $19.50 share in December. I'll consider adding again in the next month or two.

    Lately though, I am somewhat of a reverse indicator for when to buy stocks though people!

  • Report this Comment On February 10, 2011, at 4:26 PM, csvmukmuk wrote:

    Cisco (CSCO) looks to be a good buy at the current price and I (my personal opinion) see CSCO stock touching $35 or may be much higher (like Google, Apple or Netflix) in the not too far future.

    The analysts are probably forgetting that the Cisco Space Router (IRIS) is going to revolutionize the satellite industry by providing the ability to route IP traffic on the satellite. It will eliminate the need to send data to and from an extra ground station, which can be expensive and time-consuming.

    Cisco Space Routers extend IP access to areas not covered by traditional ground networks or 3G networks, delivering consistent and pervasive IP capabilities regardless of geographic location. I am able to visualize that this technology is a game changer.

    Cisco recently completed the industry's first Voice over Internet Protocol (VoIP) call made without the use of any terrestrial infrastructure to route the call. I recently did a search on Google for -internet undersea cable - and as I guessed the vast majority of the world’s communications are not carried by satellites but by an altogether older technology: Undersea cables. If the voice and data is routed without using the current terrestrial infrastructure..That will save billions or trillions of dollars spent on infrastructure (internet fiber optic cables, under the sea cables, GSM/CDMA Networks etc.).

    I view this change as much bigger in scope than cloud computing, mobile internet or even the internet put together. It will revolutionize how the phones are manufactured, telecommunication protocols, how phone calls are made/received, the global reach of cell phones without any talk of geographical coverage...OMG! we are going to witness this revolution in this new decade itself and Cisco has already created a strategic advantage to encash this revolution with the IRIS technology.

    This is just a thought that calls for more research and I do not wish to bias investor's buying/selling decision on CSCO.

  • Report this Comment On February 10, 2011, at 10:02 PM, hawkise wrote:

    For the life if me I feel this stock is worth much more even after yesterday's events

    When I was involved in networking my supervisor and I insisted on CISCO products the most reliable in the business.

    I bought the dip at 18.93. I won't get rich off this but I definitely won't loose.

  • Report this Comment On February 11, 2011, at 1:07 AM, MattMattMatt wrote:

    csvmukmuk: Satellite latency is terrible. Hughesnet latency is around 600-800 ms. By today's standards, that is unacceptable latency to reach the other side of the world, and certainly unacceptable to reach closer sites. The only people using satellite Internet are people in remote locations where terrestrial simply can't reach. Since terrestrial/cellular networks are constantly expanding, I don't see this as a huge market for the future.

    I can imagine mobile phones someday having automatic failover to satellite for voice and data coverage when you are outside of terrestrial coverage, but what is stopping that isn't a lack of space routers - it's the radios.

    Have you ever used a satellite phone? You have to be outdoors with a clear view of the sky. You can't be indoors or in a car (unless you hold the phone up against a window or something).

    Second, satellite phones are massive. Google image search for "iridium 9555". At this point, satellite phones are way to monsterous to be integrated into today's popular lightweight mobile phones.

    I don't see any sign that regular mobile phones will have any kind of satellite connectivity anytime in the next 5 years.

    I am a network architect (for Internet), and work provides me with an Iridium sat phone for emergency connectivity in case of a major disasters that disrupts traditional communication networks (as part of our disaster recovery plan). The sat phone cost $1500+ to buy the phone, and then $1.29 per minute to use. Can you say ouch?

    All that said, I'm bullish on Cisco. UCS, Nexus, and the whole "Datacenter 3.0" thing is going to be big. Datacenter infrastructure hasn't changed much in the past 10 years, but it now in the process of undergoing a massive improvement. I'm in the final days of testing the Nexus 5000 and 7000 platform and am about to pull the trigger on buying it. It solves a LOT of the problems I've been fighting on the Catalyst 6500 platform for 10 years now.

    We're about to evaluate UCS as well. It certainly appears to solve a lot of the headaches that the datacenter has had for many years now. All the people I've talked to who are using it say it's great.

  • Report this Comment On February 11, 2011, at 3:58 AM, kariku wrote:

    Buying the dip, too.

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