I would be careful with your advice.
Premium companies trade at premium multiples.
Example: Microsoft
I have ALWAYS thought that Microsoft was too expensive, relative to its P/E.
But anyone, I mean ANYONE who bought and held Microsoft 6 months ago or before, has made money.
Anyone who bout Microsoft at this time 4 years ago, paid around $15 a share for the stock. It now trades at $105. (I bought Microsoft back then, and sold it a few months later at break-even because I was impatient with it. I never bought it back, because it always looked too expensive.)
The lesson I learned: When you know a company is good, that it has a great future, you buy and hold.
Cisco is like Microsoft, except possibly with a better future in terms of growth. It may appear a bit expensive now, but hold it for a few years, and you won't regret it.
Look at it this way: Are you confident Cisco will grow by at least 30 percent for the next five years? If so, let's take your numbers, starting with a fair market value (FMV) of $52 a share.
1 year from now: FMV = $67.60
2 years from now: FMV = $87.88
3 years from now: FMW = $114.24
4 years from now: FMV = $148.51
5 years from now: FMV = $193.07
If Cisco grows at 40 percent per year, FMV could go to $280 a share.
And if Cisco grows at only 20 percent per year, FMV would still be $129.
With these kind of odds, I'd be foolish NOT to own Cisco. I've got an EASY double, and if things go pretty well, I've got a quadruple.
Of course, if you think you are smart enough to time the market, go for it. (I learned a long time ago that I am NOT smart enough to time the market, so I just try to buy quality growth companies.)
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