Why is Cisco Systems Inc. Soaring Today?

Cisco stock jumped 7%, thanks to a solid third-quarter report. How did the networking giant manage to impress its own investors?

May 15, 2014 at 2:00PM
Longview

I don't know if you noticed, but the markets look terrible today. The Dow Jones Industrial Average (DJINDICES:^DJI) was down 1.1% at 2:10 p.m. EDT, while the S&P 500 and Nasdaq indices were doing about as bad. Only two of the Dow's 30 member stocks were trading in the green.

Cisco Systems (NASDAQ:CSCO) up 7.2%, doing more than its share to stabilize the Dow. Cisco pulled over 10 Dow points out of thin air today, all by itself. That's not small potatoes, though even Cisco's heroic efforts are a long way from stemming a nearly 200-point Dow point hemorrhage.

Cisco's secret sauce is the rock-solid fiscal third-quarter report it posted last night.

The networking giant edged out analyst targets on both the top and bottom lines, and painted a picture of strong prospects going forward.

For the fourth quarter, Cisco expects sales to decline something like 2% year over year. If that sounds bad, consider that analysts currently project a 4% revenue drop. Cisco's adjusted earnings guidance points to about $0.52 per share, just ahead of the consensus analyst target.

John

Cisco CEO John Chambers. Source: Cisco Systems.

More to the point, Cisco CEO John Chambers waxed downright poetic about the improving business landscape in front of him.

"We continue to be optimistic about the future opportunity," Chambers said in the earnings call with analysts. "As our customers embrace cloud, mobility, social, analytics and the Internet of Everything, they're seeing Cisco as uniquely positioned to help them build and run the highly secure environments they require."

Chambers has been talking about the Internet of Everything (also known as the Internet of Things or Industrial Internet) as a $14 trillion market for several years now. This time, he upped the ante: "We are making measurable progress connecting the $19 trillion value, we've identified in the Internet of Everything to specific business opportunities and pipelines."

But it's not all about unlocking the long-term value of nascent megamarkets. At long last, Chambers also sees signs of a global economic recovery -- starting with the developed world.

"Our U.S. enterprise and commercial segments are usually a very good indicator of GDP slowly increasing or GDP decreasing," the Cisco CEO explained. "From a geographic perspective, total U.S. product orders grew 7% with U.S. commercial and U.S. enterprise both up by over 10%. The momentum in U.S. enterprise and commercial remains very strong."

That's particularly true in the big-ticket market where Cisco's largest customers buy some of its most expensive products. "In the U.S. enterprise, total deals over $1 million are up over 25% from Q3 start to Q4 start, and deals over $5 million are up more than 50%," Chambers said.

Cisco

Source: Cisco Systems.

Similar trends are emerging across the Atlantic, where European customers are coming back to place large orders once again. "I think they are out of this downturn, slowly improving," Chambers said. "When I talked with our customers and the top financial people in New York which I did just a week ago, most everybody else is beginning to see very similar trends. In fact, it almost was scary because when you describe the world just like I did earlier including emerging markets and the challenges in Russia and Brazil, we could finish each other's sentences regardless of industry."

It's not 100% wine and roses, of course. All of these positive signs are counterbalanced by hard times in traditional high-growth markets. "We feel good about the U.S., good about Europe, don't feel very good about emerging markets. They are still very challenged, especially the BRICs," Chambers said.

So Cisco's big quarter actually comes across as a hint of fresh air for the global economy as a whole. It almost feels wrong to get these tidings on a day when the markets are slumping. Call me a blue-eyed optimist if you like, but I don't believe Chambers would get this rosy-cheeked unless he saw a real trend happening. Plus, Cisco is not the only bearer of good economic news right now.

Whether or not you like Cisco as an investment, this report is telling you to have some confidence in the economy -- at a time when investors just aren't feeling it.

This could be the perfect time to go dumpster-diving for some high-quality stocks that are on sale right now for all the wrong reasons.

Stocks like these top dividend payers, for example
Buying top-shelf dividend stocks when they're cheap is a winning strategy. The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Anders Bylund has no position in any stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers