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Six Reasons Cisco's Stock Computes


If history is any guide, buying shares now could pay off for investors.

Back around the year 2000, California-based Cisco (CSCO) was a rock star, and as such, was pretty much a must-own for retail and institutional shareholders.

These days, it doesn't seem to enjoy quite the same reputation, and the groupies have, for the most part, moved on. But with the stock having bounced off its lows and the company's fourth-quarter earnings just around the corner (August 5), now's the time to "belly up to the bar" (to steal a phrase from our fearless leader, Professor Toddo).

Here's what makes me think the stock computes (sorry, couldn't resist):

1. I'm not a momentum guy by any stretch of the imagination, but if the stock manages to make a new high, the shares could roll to the mid or upper $20s.

2. Say what you want but these guys have been consistently beating the pants off expectations, which leaves me optimistic about seeing a beat in the fourth quarter. Management knows the score and it's not going to want to disappoint the Street at this stage of the game. My hunch is that will come in $0.02-0.03 north of the $0.28 estimate.

3. As I pointed out in an article last month, it ended its third quarter with more than $33 billion in cash/equivalents/investments. That's coin it may want to use on any one of a number of things: Perhaps it wants to make acquisitions, buy back shares, or buy $33 billion worth of lottery tickets. (You get the idea -- it's got options with that kind of flash.)

4. It bought back a pickup full of stock in the third quarter when the shares were in the teens. It will be interesting to see if the company was ponying up again in the fourth quarter. In any case, the fact that the company spent its money repurchasing shares last quarter instead of hanging onto it suggests it thought it was a good value.

5. Seventeen times the 2010 estimate of $1.27 isn't crazy cheap. But heck -- for a company that's expected to experience a high single-digit growth per annum in the next 5 years, its prominence, and its history of beating estimates, I don't think it's overly pricey, either.

6. The following 2 conferences could be a great place for it to tell its story.

Hey -- have a great day!
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No positions in stocks mentioned.

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