Cisco Systems' (NASDAQ:CSCO) stock price recently swooned after the networking giant posted its second-quarter earnings report. Its revenue dipped 0.4% year over year to $11.96 billion, which cleared estimates by $100 million but marked its fifth straight quarter of declining sales.

Its adjusted earnings rose 3% to $0.79 per share, buoyed by tighter spending and buybacks, and beat estimates by four cents. Those tepid growth rates explain why Cisco's stock price has stayed nearly flat over the past 12 months.

Despite these issues, I still believe investors should stick with the tech giant, for five reasons.

A visualization of networking connections as seen from space.

Image source: Getty Images.

1. Its infrastructure platforms business will recover

Cisco generated 53% of its second-quarter revenue from its infrastructure platforms business, which sells switches, routers, and other networking hardware. The segment's revenue fell 3% year over year, marking its sixth straight quarter of declining sales.

Postponed network upgrades during the pandemic, lost contracts in China amid the trade war, and intense competition in both switches and routers from big rivals like Huawei all contributed to those declines. But despite those challenges, Cisco still generated pockets of growth with its Nexus 9K data center switches, Cat 9K switches for enterprise campus customers, and Wi-Fi 6 and Meraki wireless products.

Looking ahead, Cisco expects its enterprise customers to accelerate their network upgrades as their employees return to work after the pandemic ends. Its planned takeover of Acacia Communications (NASDAQ:ACIA), which will add optical chips to its supply chain and enable it to sell faster networking gear to hyper-scale data center customers, could accelerate that recovery.

2. The security business remains strong

Over the past year, Cisco's security business, which bundles its services with its networking hardware, has remained its fastest-growing business.

A person uses a secured laptop.

Image source: Getty Images.

That trend continued in the second quarter as its revenue rose 10% year over year and accounted for 7% of its top line. Cisco expanded this business by buying smaller companies -- including OpenDNS, CloudLock, and Duo Security -- over the past decade.

This business should remain resilient as demand for end-to-end and cloud-based security solutions rises, and it should amplify Cisco's recovery once the infrastructure platforms business stabilizes. Cisco also ended the second quarter with $11.8 billion in cash and equivalents, so it could easily gobble up even more cybersecurity companies to strengthen this growing business.

3. The applications business is stabilizing

Cisco's applications unit -- which hosts its collaboration software and other cloud-based services -- struggled over the past year as soft demand for its on-site Unified Communications and telepresence services during the pandemic offset the growth of its Webex video conferencing service.

However, the segment's revenue stayed flat year over year during the quarter, accounting for 11% of its top line, as Webex generated double-digit percentage revenue growth from nearly 600 million users. As more people return to work, demand for its Unified Communications and telepresence services should rebound and lift its total application revenue again.

4. Stable gross margins

Cisco's adjusted gross margin rose year over year from 66.4% to 66.9% during the quarter. Its product gross margin grew from 65.9% to 66.6%, while its service gross margin climbed from 67.7% to 67.9%.

It attributed that expansion to a better product mix and productivity improvements, which offset its weaker pricing power. It expects to generate an adjusted gross margin of 65%-66% in the third quarter.

Those stable gross margins put Cisco comfortably ahead of its rivals Arista Networks (NYSE:ANET) and Juniper Networks (NYSE:JNPR), which ended their latest quarters with adjusted gross margins of 64.6% and 60%, respectively.

5. Rosy guidance with a rock-solid dividend

Based on these factors, Cisco expects its revenue to rise 3.5%-5.5% year over year in the third quarter, and for its adjusted earnings to grow 1%-4%.

Analysts expect Cisco's revenue and earnings to stay nearly flat for the full year, which ends in late July. But in fiscal 2022, they expect its revenue and earnings to rise 4% and 6%, respectively, as its infrastructure platforms business stabilizes. Cisco trades at just 14 times forward earnings, compared to forward P/E ratios of 32 and 14 for Arista and Juniper, respectively.

Cisco also pays a decent forward dividend yield of 3%. It's raised that payout every year since its first payment in 2011, and its low cash dividend payout ratio of 42% gives it plenty of room for future hikes.

Don't sell Cisco before it recovers

It might be tempting to sell Cisco's stock after a year of unimpressive gains, but you'd be selling a stock that pays a solid dividend, trades at a low valuation in a frothy market, and is on the cusp of a cyclical rebound. Simply put, it makes more sense to stay patient, hold the stock, and reinvest its dividends until its core business recovers.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.