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The Cisco Shock
When a great company announces a surprise, temporary setback that sends the stock plunging, I am drawn like a starving great white shark to fresh blood in the water. All it took was a matching of earnings expectations for this great technology firm to crater 13% in minutes, triggering stop losses, the gnashing of teeth, and the rending of great swatches of hair. This is not a commentary on Cisco itself, but of the fragile, over extended nature of the markets at this lofty altitude.
Of course, the big surprise came from a sudden drop off in sales to state and local governments, who are big users of video conferencing products. Somehow, it escaped notice in the recent midterm election that spending cuts always lead to falling sales and swinging great job losses. This is what it really looks like up close and ugly. I have been warning readers about this all year, but it seems I have few readers in Washington, and those that do mostly use the hard copies to line the bottoms of their bird cages. The other disappointment came from the cable industry, which is cutting back capital investment while its lunch is being relentlessly eaten by the Internet.
At $20.52 a share, Cisco offers a PE multiple of 10 times, versus a market average of 15, the prospect of a dividend next year, and at 12%-17%, one of the most consistent long term growth outlooks of anyone. Did I mention that they get a majority of their sales from overseas, where growth rates are posting white hot double digit rates? Buy this baby on dips to catch a Q1, 2011 rebound. Despite the sorry state of the US economy, demand from the Internet for Cisco’s high end routers from data centers continues to grow at blistering rates.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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NFLX is already taking a big chunk of internet traffic and internet streamed entertainment is just getting started. CSCO will benefit for this in the long run.
They are also an acquisition machine. The day after the deal is complete, they are hanging Cisco signs in the acquired company. They are one of the few companies that do integrations well.
If you are an investor, not a trader, (ie not trying to time the market but doing regular portfolio allocations, like pension funds do) this could be one of you better long term "bets."
That said, equities could get real ugly over the next 6-12 months.
Internet infrastructure is generally complete. If people need more bandwidth, then they will start having to pay for it (which we know they won't). The Internet as we know it is now pretty mature. There are plenty of companies churning out cheap routers, rather than the high end. rip-off Cisco stuff. But go ahead, invest! I Remember when CCIE were one step below God!
thank you
Oh yes, buy, buy, buy like there's no tomorrow! Because in case you haven't been paying attention, there REALLY might not be one.
One company decides to report an honest quarter and an honest appraisal of the future, and you become deaf. Sometimes stocks really do trade for about what they are worth. Historically bear markets end with the entire S&P trading 8-10X earnings.
If you like it at $20, you'll love it at $10.
what ever did happen to that Jon Chambers dude, in early 2000, never used to be able to turn on business channel without seeing his face
He drowned under a sea of options.
No, actually, he is still around. Chambers is a brilliant businessman, and CSCO has enough savy, cash, and connections to ride out any storm. That being said, growth is hard to come by when a company reaches their size, and the stock got hammered just like all the rest 2 years ago. Are we really better off today that we were then? When the DOW drops to about 8000, reckon QE 3, or 6, or whatever will run it back up again last this current bubble? CSCO may be good for a trade, but I would wait until it's under $15 for an "investment". As likely to happen in the next 12 months as $25...and we could see both.
Ciscon came into our Seattle office not selling equipment, but zero dollar down and no payments for six months. Buy here, pay here, they have entered the NINJA phase to push product. MHFT, you are full of shit, period. They are turning electrons into paper, very bad paper. Qualifed companies (like ours) waits only until the door hits the reps ass on the way out, then converse on how fast Ciscon will tank.
Face it once the Street gets a Stock down they NEVER let it back up again. I would not buy Csco on a bet.
Wall Street likes to play King of the Hill. They keep pushing their opponents back down the hill.
the first US technology boom was incredible. No reason to pull in the horns now. Why, hell, with electricity going to every house, and telephones. Then the radio, all this stuff rolled out in the same time frame, and automobiles, yes we were driving cars. We had been riding horses and sending telegrams a few years before. There was the TVA, hydropower for everyone in the south. It was just incredible, too bad it resulted in the biggest financial depression in history, (still going on by some accounts, merely interuppted by WWII, and several minor sequels) We have seen the fascist business model tried and failed, nearly a hundred years ago. What makes Obama think he do it any better? What makes anyone thing tech is a panacea? History has proven these things rong, but whats the definition of insanity? (doing the same thing over and over again, and thinking it will work every time, when it didn't work at all)
...and what's the definition of 'rong'? ;-0
If memory serves, Cisco recently announced that they were going to provide customer financing...of products which are worth like 5 bucks the minute they are driven off the lot. Here is a strategy that worked well for giants such as Lucent, and GM.
Number of listings on eBay for Cisco equipment:
56,871 results found for cisco
http://shop.ebay.com/?_from=R40&_trksid=p3984.m570.l1313&_nkw=cisco&_sac...
It will actually work* provided you hold the CDS on the customer financing...
*) For the subset of "work" defined as: making a bunch of insiders enough to retire wealthy at 35.
I made money on his MCP trade. I will probably pass on CSCO, but nonetheless enjoy reading his perspective.
I had an email from a federally funded client yesterday saying that the extra funding for a major upgrade to their infrastructure was probably not going to happen. Cisco and Dell were on the list of vendors. Sofa pennies in the grand scheme of things, but indicative domestically.
Still, the overseas sales is a factor.
After peak oil takes firm hold of the purse strings of the financiers, the best and almost only way to do business will be teleconferencing. If peak oil was a mainstream understanding, then we would have already wired the place tight. Too bad Cisco did not have the foresight to try to gun that concept, or maybe they think they will be opportunists and save the day. Conflicting interests may stop that however, as it takes at least some oil to do the necessary construction to convert suburbia into a disneyland of cisco wired entertainment utopia. If peak oil's manifestation is not realized, the problem will not be mitigatable-the Hirsch Report gave 20 years as a buffer.
Imagine no one leaving their houses to go to work. People dressing up in suits for a camera in their "work room", shared with a Mrs., who also wears a suit. After the video conference, they facebook for a few hours with friends before grading some reports, whatever. Then another video conference in the afternoon for the Mrs.; hubby is taking the afternoon off to virtual golf with online friends on his wii in their entertainment room. After the kids have come home from their bike to and from school, everyone shower in recycled water after their day and veg out to some "Dancing with Stars" on the boob tube in the evening.
You got it, Mr. Hendrix. The future is here for some, coming for many more...just working toward critical mass as it builds out.
By the end of Dec, I will be running my office from my home. We are in the midst of converting a lower level, and my partner (part time now and gradually retiring), the one secretary we have left, and my wife will work in about 1200 sqft. I have accounts scattered over the Southeast, and in the past 30yrs have cut miles driven from 40K+ down to about 18-20K. With this move, I eliminate my commute, saving about 30 miles and 40 minutes a day. Instead of the PBX system I use now, I am going to VOIP (EGHT - check it out if you want a hot stock for the future - it's up more than double this yr) maintaining only one land line. Also upgrading the Internet connection to 11MBS, which is the fastest available to me. Won't be video conferencing quite yet, but will eventually, and eager for it. I will be ready as soon as my key accounts are.
I live out in the country, about a mile down a 2 mile dead-end road. Invisible from the highway, only a mail box and gravel driveway advertises my existence. The office door will be a few steps from the pool with a view that includes nothing but woods. It's quiet, peaceful, and we like it....a lot. I am not a nerd or techie, but figured out long ago that I had to run faster than my customers. Looking forward to all the future tech I can eat.
I don't know about CSCO's future, but it does make me nostalgic. I discovered what routers were back in the early 90's and rolled the dice on a relatively unknown CSCO. $5K turned into over $80K a few years later....then went to about half that when I finally bailed. EGHT was under a buck last year....will be over $10 in 24 months. Just an old country boy's opinion, but it might be a nice Thanksgiving present to a few of you guys.
Independent Contractor
Actually, since most of what we call work is useless brownian motion anyway; we might all join an MMORG and "work" there, fight terrorism, remove world hunger, perform heroic deeds and whatnot for virtual gold (The real food is tank-grown shite - but it taste like chicken and inside the world you cannot see it is shite you are eating)
Keep people fed, entertained and somewhat happy at the same time.
I agree that most people do not do provide benefit now, but when the [sarc on] plebs are back working the fields [sarc off] (and they will be considering the amount of machinery it takes now, and the subsequent amount of oil) then the "lower class" (same term as plebs in my opinion as it creates division of people) will be busy. They will face book after their 40 hours in the orchards and fields, entertainment humanity will never go without. We will draw stick figures on walls when we remember to imagine.
what is this, 98% bearish by the posters here?
regardless of MHFT's analysis, regardless of fundys, regardless of valuation, CSCO is clearly a buy here based on all the ZH replies only!
face it, ZH posters have been WRONG for > 500 S&P points.
clearly, sheep flock together - regardless of which herd they run with.
Tell me one stock with the exception of gold miners that ZH crowd like.
Cisco is priced in USD, you buy it, it does it's stuff, "grows" and odds are that you still lose money thanks to Benzedrine Benny! Or ... You buy the PUTs, the stock tanks, Goldman Sachs reverse your trades and you still lose money.
And beside ... Huawei is kicking their butt in the alleged growth economies too: Yep, their gear is shit but it is cheap and you can afford to buy a Chinese/Indian to kick it whenever it keels over. Cisco today is pretty much like Ericsson a decade ago: The defacto-monopoly vendor, who only can fall & fall because there is only so much market-share at the price they need to charge for their products to pay for the corprat ovehead they have acquired.
I'll probably go for the PUT's still. But it is a craps game!
PS: I am making double-digit interest right now on Greek and Irish bonds. In interest and thanks to the leniency of the ECB, quite a nice capital gains beside - those are not going to blow before the option arms reset in 2012. I would still accept the loss for the sheer pleasure of seing the EUR blowing up - but, realistically, it will not be allowed to happen so I just collect & collect.
I agree with your comment and would add that domestically in the US CSCO is having its lunch eaten by Brocade/Foundry and HP performance and cost-wise. There is no way for them to go but down.
Ahh Yes:
The Jensen Conjecture: "Bureaucracy grows until it has consumed all the competitive advantage that attracted it in the first place".
Cisco is an absolutely screaming buy at 1/1350th of a gram of gold.
You heard it here first.
What that is in USD I have no idea cause it changes every millisecond on it's way to hyperinflationary heaven.
Can we make a promise to each to talk in gold terms? That way we'll all be talking the same language. This talking in Zimbabwean dollars has me all confused.
Be careful out there
Wow, what a nasty bunch of comments. I guess nobody on this board remembers this same type of post from madhedge when he was saying load up the truck on Transocean during the BP oil spill, when the stock was at 44. It's at $66.71 this morning, asshats. I made a nice trade on that, although I didn't stay for these lofty heights. He is talking here about a Q1 2011 TRADE. I am more oil savvy than tech savvy, so I might give this a pass, but i will sure as hell give it a look.The profits i garnered from my RIG trade surely rate this guy a read on everything he posts, for me. That is unless you asshats have a stock trade to recommend yourselves??? One that we can follow up on later to see how smart you are?
look for my 2 cents, i am not pissing on this posting because he wrote it and its positive, i am doing so because its inaccurate and silly
cisco has been talking about this growth rate for about 5 years, and attains it about 1/7th of the time when comps are absurdly easy (as they were post the crash in business conditions in 2009)
a stock is not a good opportunity simply because business conditions slow, they miss their quarterly estimates by a mile (their bookings were half a billion dollars below their internal plan) and the stock rightfully and logically trades down in response
cisco was the first company to miss and cite more difficult market conditions in 2007, and then, just like now, a bunch of mindless morons jumped up and down and said A) wow what a buying oppty and B) their results have no impact on any other industrial company trying to sell a product
It was wrong in 2007, its wrong in 2010 - thats why this posting is idiotic
I bought RIG too on his recommendation, and am still holding on to it.
The guy makes some fantastic recommendations.
Short WOR at anything over 16.50.
I enjoy MHFT's perspective and I agree with most of what he writes. That being said, I wouldn't short CSCO but I sure as hell would not buy it as the company primarily exists to enrich upper management, not its shareholders.
BTW, his RIG call was bang on (I was in it before his missive), the only question that existed was the liability RIG might have...
I am not a big fan of Cisco at this point in time, although I am a big fan of John Chambers.
I don't like Tech in general right now so any company within that sector seems too risky for my blood at this time.
Even Rig which I have sold out of at a nice profit still has my interest. There could be more downside if the lawsuits get a lot of media attention, but it looks to me like RIG is going to come out alright. If we revisit 900 on the S&P, I will immediately start building a large position in RIG and likely won't sell it again. If we take off from here and push past 1240, I'll start building a cautious position in RIG. I am long RIG for sure, but I need to see more shakeout in the market either on deflation or inflation.
I know 'the Bernank' is trying like hell to inflate, but he may just fail and we get a nasty downturn. I believe I am situated pretty well for either outcome right now, but fundamentals and price discovery have gone out the window for the time being. I'm holding a good amount of cash right now.....being patient.
I like hearing people suggest opportunity. I may not agree but I am open to their thoughts. I think if you don't like the post, trash Cisco with facts, don't shoot the messenger.
lol. Still holding the stock pre-earnings and trying to get it off the books via pump n' dump ?
Ciscos stock, perfect example of a stock in which future value has ben stolen by outsized and outlandish options contracts to management. Nothing left for the shareholder but bones.
Cisco might very well go the way of Alcatel and Lucent when the real crisis hits.
Talking his book again because he's afraid he'll get hammered soon. Classic action by madhedgefundtrader - trying to make someone else the bag holder for his crappy decisions.
One year from today, CSCO will be at 24. Gas will be $4.13, wheat will be $9.55, coffee will be $3.12, and everybody who bought a piece of paper that 1) represents nothing they can control, 2) is a piece of a "company" run by and for management who is most interested in their own bonuses, and 3) is policed by incompetents who want nothing more than to retire on their guv'ment pensions -
will have lost value.
Great company, great prospects and great products.... Problem is that it is a shitty stock, most of the profits were "privatized" by upper management via options and share buybacks, nuttin but crumbs for the lowly investors.
I only invest in companies where the shareholders get the lions share of the profits, royalty trusts, MLPs and what not.
It should be prohibited to give direct stock analasys/recomendations on ZH imo
Why?
Because if a substantial number of them panned out they'd have to charge a subscription fee!
Maybe a disclaimer is needed in this sort of post? (One that does not require a click-thru.)
Cisco absolutely sucks. There are tons of greedy sales channel reps that are on par with scumbag bankers. Not suprising considering how much revenue comes from financials. I seriously hope the FBI is investigation the "Expert Network" and CSCO.
cisco is going to crash and burn world com style. They're financing their customer's purchases. They have to do this since banks won't finance their customers. The banks won't finance thier customers because they cannot repay the loan. What do you think will happen to cisco once this comes to light?
Nothing good, I assure you.
Seriously, why Zerohedge has you as a contributor is beyond me.
As far as I can tell, their competitors (such as HPQ) are also financing customers' purchases. IBM also seems to be doing a lot of customer financing. Lease financing still wouldn't explain why they're doing comparatively worse. > What do you think will happen to cisco once this comes to light? It seems it's always been reported in their financial statements under "Lease receivables", so...
"They're financing their customer's purchases."
Can you provide proof of this statement?
It's in the company's quarterly earnings report. Public info. It's why the stock is depressed and not coming back any time soon. MHFT would do himself a huge service if he learned to read them.
they're not the only ones, its like i tell you XYZ is cooking the books. So what they all do. Before the 2000 crash (remember that?) the gloom and doomers were taking S&P prof forma earnings under the microscope. Twenty years of operating losses written off as one time charges etc. Hey everybody was doing it.
There are guys who make a living turning over rocks, like Hank Greenberg, but in the end it doesn't matter how crappy their fundamentals might be, (or in the case of Google how many clickthroughs are faked, or how good advertising really is) it really comes down to their business model, and in tech you're only as good as your next product rollout. Cisco used to be a high flyer, but it has never come anywhere near those old highs, and probably never will.
Remember the guy who bought RCA the day before the market crashed in 29, held it until the 1950's to get back to even, and where is RCA today?
exactly...
why tell to whole world... ? if its good buy till its cheap..
seems old fuck lost his mind completely...
alx
Just maybe it's the other way around and CSCO is foreshadowing a slowdown in those "white hot" double digit growth rates. Time will indeed tell.