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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?


To: Spekulatius who wrote (42993)6/12/2011 7:39:44 PM
From: E_K_S  Read Replies (1) | Respond to of 78765
 
Thank's for the explanation.

I think I will hold off on starting a tracking position on Cisco for now. It seems like their margins are still under pressure.

I didn't realize the following:

Cisco vs. Intel: 2 Fallen Stars of the Techno-bubble Show
by: Dr. Osman Gulseven May 26, 2011

seekingalpha.com

From the article:"... The ten year annualized return for Cisco has been -3%. Intel shareholders experienced an annualized loss of 1%, even though Intel paid significant dividends..."

Cisco's margins continue to fall while Intel seems to have increased them building on their last generation chip technology. Maybe they can find their way to similar margins as they gear up to produce their new low powered ARM processors.

From the article:"...While Cisco's gross profit margins hover around 63%, the net margins are thinner, and ttm net profit margin falls to 17.89%. Therefore, Cisco might never reach its glorious market cap of $500 billion. On the other hand, Intel was able to increase its gross margin in the last four years, from 51.9% in 2007, to 64.6%. In addition, net profit margin increased from 18.20% in 2007, to 26.38%. I think Intel is on its way to become a dividend-growth company....".

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I guess from a very simplistic "value" view, both companies have a forward PE of 8.5 but one is experiencing decreasing product margins (ie CSCO) while the other has increasing profit margins (ie Intel). According to the article, Intel's net profit margins are 26.38% vs Cisco's 17.89%.

Intel also pays twice the dividend amount that yields 3.4% vs CSCO's 1.6% yield.

EKS