The new year is a good time to review holdings and check whether they still fit in your portfolio. There aren't many better candidates for a keep or sweep analysis than Cisco.
The widely held tech powerhouse is one of the 10 most-rated stocks in Motley Fool CAPS and carries a four-star CAPS rating (out of five possible), but it managed the second-worst return for 2010 of any Dow Jones Industrial Average company. The only member of the 30-stock industrials club to have a worse 2010 was fellow tech titan Hewlett-Packard (NYSE: HPQ).
Like many Fools, I hold Cisco to provide growth without a lot of risk. That hasn't been working out so well, but is the future looking brighter? Opinions here at the Fool are mixed. Anand Chokkavelu thinks the stock is a good bargain while Tim Beyers has a bearish outlook along with a way to play the stock. Here's a business snapshot.
|
Company Name and Ticker |
Cisco (Nasdaq: CSCO) |
|
1-Sentence Statement of Operations |
Cisco manufactures and sells networking, communications and information technology equipment, as well as software and services. |
|
Recent Share Price |
$20.23 |
|
Market Cap |
$112 billion |
|
P/E (FY 2011) |
12.6 |
|
Estimated Annual Earnings Growth (Next 5 Years) |
12% |
|
PEG (P/E-to-Growth Ratio) |
1.04 |
Source: Yahoo! Finance.
Cisco's past stock performance is pretty pathetic, but the fall in price over the past quarter makes it look attractive going forward. Let's see how Cisco stacks up against some of its large-cap tech peers.
|
Company |
P/E Ratio |
5-Year Estimated Earnings Growth |
PEG |
CAPS Rating |
|---|---|---|---|---|
|
Cisco |
12.57 |
12.03% |
1.04 |
**** |
|
Hewlett-Packard |
8.05 |
9.50% |
0.85 |
*** |
|
Microsoft (Nasdaq: MSFT) |
11.39 |
11.26% |
1.01 |
*** |
|
IBM (NYSE: IBM) |
11.67 |
11.28% |
1.03 |
**** |
|
Apple (Nasdaq: AAPL) |
16.81 |
20.00% |
0.84 |
*** |
|
Google (Nasdaq: GOOG) |
17.67 |
18.07% |
0.98 |
*** |
Source: Yahoo! Finance and The Motley Fool.
Apple and Google trade at a premium to the group, but also have the highest expected growth rates. The key concern is how much longer the strong earnings growth can continue. Based on the three-star ratings, I'd say a sizable group of the CAPS community is also concerned that it will be tough to continue the growth rate of the past few years.
The rest of the group trade at similar valuations and have similar growth projections. Hewlett-Packard has the lowest projected growth along with a new CEO. Microsoft, IBM, and Cisco are all mature tech companies with nearly identical growth estimates and valuations. A kicker for Cisco is its plan to start paying a dividend. That opens the door for funds that can only invest in dividend-paying stocks to join the ranks of shareholders.
Cisco's valuation compares well with its peers and there's a potential bump in buyers when the dividend checks start flowing. In a close call, Cisco rates a "keep it."
You can follow any of the stocks mentioned using our free watchlist service, My Watchlist.
- Add Cisco Systems to My Watchlist.
- Add Hewlett-Packard to My Watchlist
- Add Microsoft to My Watchlist
- Add IBM to My Watchlist
- Add Apple to My Watchlist
- Add Google to My Watchlist
Share your opinion in the comments box below and kick in ten cents for Foolanthropy.
Related Foolishness:
