What's Wrong With Cisco Systems Inc. Today?

The Dow is rallying today, but Cisco Systems decided to sit this one out. Is it just a display of pre-earnings nerves, or something more sinister?

Feb 11, 2014 at 2:00PM

Image source: Cisco.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average (DJINDICES:^DJI) has risen 1.2%,, with 29 of its 30 components trading up, as of 2 p.m. EST. The only Dow stock showing red ink on this cheerful market day is Cisco Systems (NASDAQ:CSCO), inching 0.15% lower.

Why is Cisco sitting out this market rally?

First, Cisco is set to report earnings tomorrow evening. The stock has traded up 7.1% since the last report, beating the Dow by a considerable margin. Taking a break from this three-month surge gives Cisco investors a chance to think about what this particular report might mean for their investment theses on the networking giant.

CSCO Chart

CSCO data by YCharts.

Don't forget that Cisco doesn't always live up to expectations. Even when it does, shareholders often find dark clouds on the horizon.

That first-quarter report in November, for example, exceeded analyst targets but followed up with weak second-quarter guidance. Cisco's sales are struggling in emerging markets, and CEO John Chambers doesn't expect a return to growth in these crucial areas for several quarters. As a result, the stock plunged 14% overnight. Include that drop in our three-month overview, and Cisco has traded down 3% overall instead.

CSCO Chart

CSCO data by YCharts.

That's all the more reason for Cisco investors to tread lightly at this point. Current Street estimates toe the line of Cisco's gloomy guidance, pointing to adjusted earnings of about $0.46 per share on sales of $11 billion. Cisco will have to surprise itself in order to beat analyst estimates.

So there's no particular reason to be unusually negative on Cisco's stock today -- but investors' nerves are rattling anyway, and for good reason.

Long-term investors should check back after tomorrow's report and take action on fresher data, paying particular attention to trends in growth markets such as the BRIC bloc. This is what Cisco's management is focusing on these days, and investors would be wise to follow suit.

Hands off Cisco, you say. Got any better ideas to trade today, then?
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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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