The Cheapest Stocks on the Dow: Cisco

The following video is part of our "Motley Fool Conversations" series, in which industrials editor/analyst Isaac Pino discusses topics across the investing world.

In today's edition, Isaac takes a cue from Fool colleague Dan Dzombak, who recently described a time-tested tool for uncovering companies with above-average cash flows. Sometimes a simple metric like return on equity (ROE) or return on assets (ROA) can be misconstrued due to legal accounting manipulations, but evaluating a company based on cash generated from invested capital (ROIC) helps minimize these effects. Isaac applies this method to the Dow companies to identify the cheapest components and finds Cisco near the top.

Cisco leads the pack when it comes to switches, capturing 60% of the market share, according to Morningstar research. On the core router front, competitor Alcatel-Lucent recently introduced new routers that support up to 32 terabytes per second, but Cisco's ability to remain one step ahead should push the stock higher as it enters into the cloud arena and services markets.

While dot-coms come and go, Cisco remains a solid tech investment as it builds out the information superhighway. The Motley Fool believes behind-the-scenes companies like Cisco could emerge in the mobile revolution as we enter a new era of computing. Uncover these stocks in our recent free report, "The Next Trillion-Dollar Revolution," which details a hidden component play inside mobile phones that also is a leader in the exploding Chinese market. Inside the report, we not only describe why the mobile revolution will dwarf any other technology revolution seen before it, but we also name the company at the forefront of the trend. Hundreds of thousands have requested access to previous reports, and you can access this new report today by clicking here -- it's free.

Isaac Pino has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services recommend Microsoft. 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.


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  • Report this Comment On June 28, 2012, at 12:12 AM, andresmitchell wrote:

    One of your main premises to invest in Cisco is because it "continues to innovate." Uh, really? Which Cisco have you been following? This has been one of the worst innovators in tech and has missed more opportunities than possibly anyone. Was the Cius tablet an example of this "innovation?" The Flip video camera? Scientific Atlanta's set top boxes? Overpriced (and on its way out) video conferencing gear? Those were all horrible purchases, not even products developed internally in the great Cisco "innovation" machine. Is the stock cheap? Well it's not expensive. What does that mean? For the last decade it's meant nothing. If you're saying to buy the stock for the inadequate 2% yield I guess you could do that. The stock has not and will not appreciate so capital appreciation is not even a possibility. Stock buybacks have been nothing short of a disaster. One of the worst CEOs in American business history. Sorry but you have to do better than touting their innovation. I think you need to do your homework there. There is zero innovation and the company is about to be caught with its pants down as software defined networks make their equipment obsolete over night. Cloud? Cisco's in the cloud? The cloud is exactly what's going to kill them.

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