Cisco

The IT industry is something I have stayed largely out of. This could be the double-jeopardy I feel from it being my core industry of work, but then again that has never kept me out of Oil and Gas. I think up until early 2010 I did not see where the growth would come. Now I’m starting to feel quite differently.

All year I have kept an eye on the storage companies like Seagate (STX), Western Digital (WDC), EMC (EMC), and NetApp (NTAP). Both EMC and NetApp have had good years, with EMC up 30% and NetApp up 56%. While at the same time the disk makers Seagate and Western Digital are down 20% and 25% respectively. I don’t think I would have picked it to end that way, so I have stayed out because I thought the actual HW was where the money would be made. Clearly I know less than I think…

Cisco (CSCO) on the other hand, they make lots of things… Hardware at every level from consumer to enterprise, Software, equipment, and they sell services. What could be better?

November 11th opened up a tremendous opportunity then, as Cisco issued low guidance the stock got pummeled. CSCO dropped 15% in one day, two days later I bought in. One week after that, the company announced a $10B buy-back of their stock. Clearly I was not the only one who thought the 15% drop was an overreaction.

CSCO is down about 17.5% for the year, and it is nowhere near its $33 highs in 2007. That said it is also off its 2009 lows of ~$14. I think this stock is a great long-term purchase in this $19.50 - $20 range. I also think the PE of only 14 is an indication of how underpriced this stock currently is. If they are able to make some big steps in 2011, then we should see this stock back in the $25 range where it was prior to the forecast announcements. If 2011 is a lackluster year, then I would hope 2012 could deliver that $25 range. This seems like a great 12 – 24 month opportunity.