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Why Is Cisco Systems Inc. Soaring Today?

This is just a friendly reminder: market moves don't always make sense. Not even the big ones.

Case in point: Cisco Systems (NASDAQ: CSCO  ) is far and away the largest gainer among the 30 Dow Jones (DJINDICES: ^DJI  ) stocks today. The networking specialist's shares are up 2.9% and 5.9% over the last week, easily besting the Dow's 0.3% and 1.4% gains, respectively.

Source: Google Finance.

Cisco doesn't have any massive, game-changing news of its own today. Really, you might expect the stock to suffer a bit when the company's biggest headline on the day was a reiterated sell rating from analyst firm Credit Suisse. We'll get back to that pessimistic analysis in a minute.

First, let's have a look at Cisco's actual catalyst, an industry-wide tide that is lifting all the major networking boats. Alcatel-Lucent (NYSE: ALU  ) is up 3.1% and Juniper Networks (NYSE: JNPR  ) climbed 2.5% higher.

This green tide rests on last night's fourth-quarter report by Chinese rival Huawei.

Huawei is shifting its focus from maximum revenue growth to stronger profit taking, which leaves breathing room for Western competitors in an increasingly cramped global networking market. So there's plenty of reason to take non-Huawei networking stocks up a notch on this news.

However, Cisco happens to be a special case. Huawei is taking market share from Alcatel, Juniper, and Cisco in pretty much every submarket, but the Chinese company has an extra large foot in the door of enterprise-class data centers.

Image source: Cisco Systems.

That's Cisco's strongest traditional market, and even a slower-growing Huawei could pose a serious threat to Cisco's core profit center here. Remember the Credit Suisse report that I promised to get back to? The firm pointed out that software-defined networking products are digging into Cisco's enterprise market as well. Even if Cisco successfully moves over to SDN products before it's too late, that model carries inherently lower margins and the company's profits are likely to erode.

So even the industry-wide tidbit that is driving other networking stocks higher contains a bit of bad news to undermine Cisco's surge. On top of that, there's a bit of unique bad news just for Cisco.

And yet the stock is soaring. Mr. Market forgot to put on his thinking cap this morning and is focusing on all the wrong things this time.

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Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 01, 2014, at 3:49 PM, Rearwindow220 wrote:

    With all due respect, any analysis regarding 1-day or even 1-week price move is quite irrelevant. Brokers are generally pessimistic about Cisco's mid-term growth partly because of this SDN thing. But for the short-term, at current price CSCO has the room to move up without a problem.

  • Report this Comment On April 01, 2014, at 4:07 PM, bobnm124 wrote:

    Everyone writes about Cisco as they think they understand the business, if you don't have credentials in networking and understand the community then your analysis is irrelevant. The company has global clout with businesses and networking professionals around the world, there is no one Hauwei academy or following. The DoD uses Cisco, the backbone uses Cisco, they invented the routing protocols and they have one of the best balance sheets around, stop "fooling" yourselves, you dont understand the business, so stop writing like you do. If you don't understand it but its cheap then buy it because its cheap and provides an investment opportunity not that you think you understand the business. People are throwing money into the cheapest biggest stocks, but it probably popped because Cisco was carrying out there buy back plan. And lastly credit Swiss is saying sell because they are shorting the stock, stop listening to what others are telling you and make a decision for yourself.

  • Report this Comment On April 01, 2014, at 4:14 PM, bobnm124 wrote:

    And I did take into consideration that you were a UNIX admin and web developer.

  • Report this Comment On April 01, 2014, at 4:17 PM, bobnm124 wrote:

    Edit "there" to "their". Disclosure: I don't own Cisco and don't have any intention on buying it in the near future.

  • Report this Comment On April 01, 2014, at 4:18 PM, bobnm124 wrote:

    And why are we using Mr. Grahams "Mr. Market"

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Anders Bylund

Anders Bylund is a Foolish Technology and Entertainment Specialist. Where the two markets intersect, you'll find his wheelhouse. He has been an official Fool since 2006 but a jester all his life.

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9/3/2015 4:35 PM
^DJI $16374.76 Up +23.38 +0.14%
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