Many investors like to buy and hold shares of companies that are leaders in their respective fields, generate a substantial amount of cash (preferably with a generous capital return program in place), and have reasonable long-term growth prospects.
I think Cisco Systems (CSCO +1.54%) easily fits that profile, and could be an attractive stock pick for investors who want such a company in their portfolios.
Image source: Cisco.
Clear dominance in networking
During Cisco's fiscal year 2018 -- which ended on July 28, 2018 -- the company generated $28.27 billion in revenue from sales of network infrastructure products, rising about 2% from the $27.78 that it generated in the prior year.
Cisco's large revenue from network infrastructure products is underpinned by significant market share in many types of infrastructure products. According to market researchers with IDC, Cisco led the Ethernet switch market, capturing 54.4% market share in the third quarter of 2018. In the router market, though its share wasn't as high, Cisco also led at 39.4%.
Cisco's market position in important network infrastructure products like Ethernet switches and routers is large, and helps the company generate massive amounts of revenue.
A cash-generation machine
Cisco also generates a significant amount of cash -- and, perhaps unsurprisingly, gives a lot of it back to shareholders:
CSCO Free Cash Flow (TTM) data by YCharts.
Over the last 12 months, Cisco has generated $13.47 billion in free cash flow, which works out to a little over $2.80 per share. The company doesn't just let that cash pile up, though -- it gives plenty of it back to stockholders.
Cisco currently offers a dividend of $1.32 per share (for a dividend yield of 2.79%), and has a solid track record of giving shareholders annual dividend raises. The company also has a robust share-repurchase program in place and, according to its most recent quarterly filings with the Securities and Exchange Commission, has about $14 billion remaining on that repurchase plan -- good for nearly 6.6% of current shares outstanding as of this writing.
Decent growth prospects
Cisco isn't the hottest growth stock on the planet; it's a large, mature, and highly profitable leader in its field. That doesn't, however, mean that growth isn't in the cards.
Analyst estimates call for Cisco to turn in 4.6% revenue growth in 2019, followed by 3.2% growth in 2020. That's not an insane amount, but investors don't seem to be expecting huge growth, as the stock trades at about 15.6 times analysts' estimates for 2019 earnings per share and 14.3 times analysts' 2020 EPS projections.
Cisco offers decent growth prospects at a relatively cheap valuation -- a characteristic that may be appealing to more risk-averse investors.
Check out the latest Cisco earnings call transcript.
A solid long-term choice
If you're looking for a stock that'll double your money in a year, I'd suggest steering clear of Cisco shares -- the growth potential (like the corresponding risk profile) just isn't suitable for you. However, if you're looking for a best-in-breed technology company that has strong market share positions in its core markets, generates a significant amount of cash, and should deliver modest growth in the years ahead, Cisco might be worth your time.
