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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 74.38

+0.9%

11:41 AM EST

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To: Wyätt Gwyön who wrote (62290)	11/6/2002 6:54:04 PM
From: Stock Farmer	Read Replies (2) of 77400

Mucho - i may have to revise my 3 dollar price target downward I wouldn't do that. I think $3 is too low for Cisco. They have shareholder equity of about 38 B$ which puts them at about $5. $3 would be close to tangible book, which I think is low for Cisco. I think it's appropriate to look at return on equity. $600 M on 38 B$ is about 1.6% or pretty near what makes Cisco worth 7.3 Billion five dollar bills. [EDIT: Note I am intentionally demonstrating generosity] Which leads us to the argument that yes, business will recover. Sure. So will short term rates, I suspect. So let's say the economy picks up and things get back to normal. Cisco triples earnings and we go back to 5% risk free rate of return in the short term. That would still make Cisco still worth about $5, unfortunately. 'Cause 1.6%x3 = 4.8% So I think a good buy in price with some prospects for return would be about $5. Over 2x my "good buy" price and I'm not interested. At about 1.5x I'm tempted. We haven't hit that point. Yet. I suspect $7.50 will be a very hard floor 'cause there's only one lower strike on which billions of shareholders can eke out a meagre income by writing covered calls. So I figure we're going to oscillate violently, mainly between the strikes at $7.50 and $15 while the value of the company catches up to the stock price. Grabbing a slice in this environment is kind of like trying to climb onto a boat in a hurricane. Possibly safer to stay clear until the waves subside, or risk having something large and heavy come down hard. Not just Cisco either. Just about every big cap issue is faced with similar problems. Too much excess money sloshing around trying to find returns, but no real returns available. Just sloshing. John

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