CSCO--Death of Cisco Greatly Exaggerated
Glenn S. Curtis, Columnist
Insiders have been taking steps to sell shares, but outsider stockholders shouldn't follow.
Insiders have been filing to sell stock at Cisco (Nasdaq:CSCO - news) hand over fist.
In fact, insiders have been filing form 144s (a form filed with the Securities and Exchange Commission indicating an intent to sell stock) like crazy over the past year. During the week of Aug. 18 alone, executives filed to sell more than 1.3 million shares.
Does this mean that investors or funds should follow the lead of these savvy execs and sell the stock? In a word, no.
Officers and directors sell stock for many reasons. Conversely, they buy stock for just one reason. They think they are going to make money. Cisco chief financial officer Larry Carter recently filed to sell 500,000 shares, or about $31.7 million in stock. But do I think that this selling is necessarily a harbinger of bad things to come? No way.
Dell and Gates Sold Stock, Too
While insider selling can be a bad sign, particularly at thinly traded companies, this type of selling is not uncommon among high-flying technology stocks. Selling at big-name companies like Dell Computer (Nasdaq:DELL - news), and Microsoft (Nasdaq:MSFT - news) -- stocks that have taken a big run -- is not uncommon by any means. Consider that both Michael Dell and Bill Gates have been consistent sellers over the past few years, yet their respective stocks have faired quite well.
Cisco is up 95.8%, adjusted for stock splits, in the last year through Aug. 23, according to Morningstar. You can hardly blame insiders for taking some money off the table. Investors should also keep in mind also that Mr. Carter has been granted more than 1.5 million stock options over the past three years working at Cisco, so a little selling is to be expected.
Further, according to the last proxy statement, he owns more than 1.8 million shares. In short, Mr. Carter still has a big interest in making sure that the company succeeds. To that end, while it makes sense to question the motives of insiders who dump the stock, it also makes sense to do a little more homework on the company in question before making any rash decisions.
Baby Got Backbone
Cisco is essentially a vertebra in the backbone of the Internet. Cisco is without a doubt the premier provider of Internet connectivity products... stuff like routers, switches, as well as a variety of other software and hardware products that allow end users (you and me, for the technologically challenged) to receive content over the Net in a fast and efficient manner. The company is especially well positioned after making a slew of acquisitions, including: Aironet Wireless Communications; Pirelli Optical Systems; Altiga Networks; and Compatible Systems; and Growth Networks.
And while competition is certainly a big factor in this business, Cisco has established relationships with many other big-name firms that will ensure its participation in the way we will conduct business and communicate in the future.
A few select alliances include: a relationship with Microsoft (Nasdaq:MSFT - news) to develop security technologies; a partnership with Hewlett-Packard (NYSE:HWP - news) to develop products to reduce the complexity, both parts and personnel, needed to run a network; and a pact with Motorola (NYSE:MOT - news) to develop the framework for wireless networks, including the transmission of voice, data and video services.
In short, whether you are using your PC, a cell phone, or virtually any other device that utilizes a network down the road as a means of transmitting content, the odds are Cisco will be part of the process.
Don't Sell Support Short
And that's the type of company I want to invest in -- an enterprise that makes a host of products and provides an array of services that can't be bypassed. A great analogy might be that Cisco is the nails, the glue and the rivets that hold a building (or in this case, a network) in place. Without their involvement we can still exist, but it just wouldn't be quite the same.
There are those who will claim that recent insider action is an ominous sign that the end of Cisco's reign is near. But looking at the big picture, one might also make the case that Cisco's story is still in its infancy stage.
For as long as Cisco can continue to establish strategic relationships that weave its way into our homes and business via the network, then I think both the company and investors have a viable future. And until the fundamentals begin to deteriorate, or until some unforeseen event knocks Cisco off its pedestal, shareholders would be best advised to consider the recent insider activity as nothing more than just noise.
Glenn Curtis is an analyst for worldlyinvestor.com. Prior to working at worldlyinvestor.com, he was an analyst at InsiderTrader.com, a financial Web site, and at Cantone Research, a brokerage firm in central New Jersey. Curtis is series 6, 7, 24, and 63 licensed. He doesn't hold a position in any of the companies mentioned. Positions may change at any time.
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