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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: sepku who wrote (12582)	2/19/1998 8:43:00 PM
From: Perry	Read Replies (1) \| Respond to of 77399

The Daily Double (Archive) Feb 19, 1998 Cisco Systems (Nasdaq:CSCO - news) Phone: 408-526-4000 Website: cisco .com Price (2/18/98): $65 1/2 HOW DID IT DOUBLE? A double for Cisco Systems is certainly no big deal. This networking juggernaut has been the single best performing stock of the 1990s. $10,000 plunked into Cisco Systems in 1990 would be worth well over $1 million today. The stock has risen over 12000% in that time. The #2 stock, America Online (NYSE:AOL - news) , has risen a mere 4800% in the same period. At this time last year, the networking stocks were rocked by 3Com's (Nasdaq:COMS - news) proposed merger with U.S. Robotics and by the news that Intel (Nasdaq:INTC - news) was going into the networking business with an aggressively priced networking hub and a fast ethernet chip. Investors dumped networking stocks and among the jetsam was Cisco Systems. This dip to $30 a share provided a unique buying opportunity and created another double for investors. Occasionally a stock falls because of problems in its sector that don't relate directly to the company and that can create an opportunity. BUSINESS DESCRIPTION Cisco is the leading supplier of products that link local area networks (LANs) and wide area networks (WANs). Cisco is the undisputed leader in the computer networking equipment business. It has 85% of the market for routers and 35% of the market for LAN switches. Its other products include dial-up-access servers and network-management software. It is rapidly moving into the data/voice/video integration business. In addition to internal growth, Cisco is growing through acquisitions. Most recently it acquired Lightspeed. Cisco has developed strategic partnerships with the industry's biggest players, including Microsoft, Hewlett-Packard, and Intel, and with communications firms such as GTE, US West, and Alcatel. Cisco is booking fully 41% of its orders at its Cisco Connection website using its own networking technology. Pretty slick. FINANCIAL FACTS Income Statement 12-month sales: $7298 million 12-month income: $1614 million* 12-month EPS: $1.55* Profit Margin: 22.1% Market Cap: $69561 million (*Pro forma, excluding non-recurring items) Balance Sheet Cash and investments: $1614 million Current Assets: $3556.3 million Current Liabilities: $1350 million Long Term Debt: None Ratios Price-to-earnings: 42.3 Price-to-sales: 9.5 HOW COULD YOU HAVE FOUND THIS DOUBLE? Greg Markus, the manager of the Boring Portfolio, has been a long-time holder of Cisco. Last April when the stock hit the skids, he was resolute in his opinion that the stock looked cheap and was undervalued. He presented his argument in a column that nearly coincided with the low in the price. The basic bullish argument for Cisco has been the growth of the networking industry that is expected to be in the 30-50% range. Cisco is the industry leader and has consistently stated that it intends to grow even faster than the industry at large. There was no fundamental justification for the swoon in Cisco's stock price last spring. An investor willing to look beyond the fear of the moment in the networking industry could have picked up Cisco on the cheap. WHERE TO FROM HERE? Cisco isn't cheap, and it hasn't been for some time. An investor has to have the confidence that Cisco will continue to lead this rapidly expanding industry. In a recent Investor's Business Daily article, analyst Mike Rothman of Meta Group was quoted as being concerned that Cisco had fallen behind while others see Cisco as a leader in the move to data/voice/video integration. The sheer size of Cisco makes it less agile in a rapidly changing technological environment. However, the company is committing even more money to R&D, and its cash hoard makes further acquisitions probable. As far as valuation goes, Cisco is selling at 30 times its 1999 earnings estimates, right in-line with growth rate estimates of 30%. Even though the stock is selling at around 9 times sales, this is near the five-year lows for that ratio. At 32 times cash flow, the stock is again at a five-year low. Even at these "bargain" prices it is unlikely that many "value" investors are lining up to buy the stock. Cisco is a great stock to own, and it does have periodic dips in price that create buying opportunities. A savvy Fool could use those dips to build a position in this networking heavyweight. -Mark Weaver, MD (MWEAV@aol.com)