JRI,
I talked to alot of buy-side and sell-side analysts in Vegas last week. For the first time in three years, I am hearing people talk about value in the context of techstocks in general and Cisco in particular. I am not so certain that Janus and Fido will be buying every dip at this point, which means a cycle of lower highs and lower lows.
If valuation means something now, then Cisco is overvalued. Most institutional investors I know believe that last quarter's 55% YoY growth was the high water mark, and that both top-line and bottom-line will decelerate for the foreseeable future - this is why the stock traded off after earnings. Deceleration is bad news, as it could provide the catalyst for a series of revaluations around earnings.
The questions are: will the deceleration be gentle enough to avoid a big catalytic event? (I think so, Cisco has huge backlog to feed on) What is an appropriate multiple? (50-60 would make historical sense) How long will it take to revalue? (I think well over a year) What events have to happen to circumvent this scenario and how likely are they? (Possibilities: Cisco displaces NT at a big important optical account - not likely, Cisco makes a big splashy acquisition a la Corvis or Sycamore - quite possible, this all turns out to be just another blip and sentiment turns blindly bullish again - doesn't feel likely)
So, to sum it up, I look for a long slow contraction of Cisco's multiple with the stock up mid-single digit % between now and the end of the year. We've been selling to get back to an underweight position.
As for semis, the chip makers ALWAYS believe the up-phase will last longer than it does. I think the sector is safe through the summer, but I'm planning to take money off the table by 4Q. |
