Left For Dead, Cisco Surprises Investors

Cisco could be one of the best values on the market if it can turn on its growth engine again.

May 15, 2014 at 3:30PM

On a day when the Dow Jones Industrial Average (DJINDICES:^DJI) is down 1.2% in late trading, there aren't a lot of bright spots for investors. To reinforce the point, the National Association of Home Builders/Wells Fargo Housing Market Index fell to 45 in May, down one point from April and the lowest level in a year, suggesting degrading homebuilder confidence.

But Cisco Systems (NASDAQ:CSCO), long a laggard of the Dow, was up nearly 7% after easily topping Wall Street's earnings expectations.

Cisco is back from the dead
Expectations weren't exactly high for Cisco -- third-quarter revenue was down 5% year over year to $11.55 billion, but that still topped the consensus estimate of $11.36 billion. Net income dropped 3% to $2.6 billion, or $0.51 per share, $0.03 ahead of Wall Street's projection.  

It's really guidance that got investors pondering a comeback for the networking specialist. Management expects revenue to drop 1% to 3% in the current quarter, with earnings of $0.51 to $0.53 per share. Those beat Wall Street's expectations on both counts.

Cisco has seen revenue slow on lower sales of switches and other products, but it's starting to transition toward growth. Book to bill was "comfortably above 1," meaning revenue should grow in the future. That transition may also happen faster than analysts predicted with next quarter's decline smaller than expected.

What I think go underappreciated is the company's $50.5 billion cash hoard and the $3.2 billion from operations generated just last quarter. That gives investors a big safety net and also more than covers a 3.3% dividend yield.

If Cisco can just return to flat results it will be a steal for investors. The cash hoard is 40% of the company's $125 billion market cap, and despite some slowing in its main markets it can still command an incredible 63% gross margin, the envy of any company.

If you're looking for a value stock with upside potential, Cisco is a good one. Today shows that the market may be realizing that potential.

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Travis Hoium owns shares of Cisco Systems. The Motley Fool recommends 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

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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