Company Name: Cisco
Entry Price: $36.10
Target Price: $46.50
Projected Yield: 22%
Time Line: 3 to 6 months
Cisco is one of the leading manufacturers of networking equipment and switching solutions for corporate networks, data centers, and medium and small businesses. Cisco products are optimized for service providers, financial institutions, and the public sector. The infrastructure products account for 54.50% of the company's earnings. These earnings are distributed as follows: 53% in the US, 3.30% in China, 2.70% in Japan, 2.50% in Germany, 1.70% in Italy, and 36.80% in other countries.
What's the Idea?
Buy a stock that may grow with leading position in various segments, active business expansion, and being undervalued.
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Why Trade Cisco?
Reason 1: Market Leadership and 5G Potential
Cisco is a leader in private networking and cloud computing for hybrid networks. According to the International Data Corporation, the company's share of the web switch market exceeded 50% in 2019.
Over the recent quarters, the company saw some industry-specific downturn, which put Cisco's financial performance under pressure. However, with 5G networks, there will be some medium term support to the demand for networked hardware solutions. The evolution of the hybrid cloud business is expected to have an impact on the company's performance. GlobeNewswire estimates the networking market to rise by 5.40% per year through 2027.
In addition, Cisco is one of the leading providers of hardware and software solutions for the cyber security market. The company has increased its product portfolio with an IoT security architecture that monitors and protects IT infrastructure. The Cisco Cyber Vision system for automatic production facility detection is also aimed at solving these issues. This market segment demonstrates good growth, and the analysts at Gartner have included Cisco products in the leaderboard.
Reason 2: Business Expansion and Diversification
Over the last few years, the Cisco management was actively working on business diversification. This will ensure the cash flow stability and boost the business growth. As such, Cisco increased its hardware solution portfolio by acquiring one of the optical solution market leaders in 2019, Acacia Communications.
In addition, the analytics is being developed as well, which acts as an important component for the hardware part. AppDynamics has also become one of the key rising drivers, expanding the capabilities of Intention based network, SD-WAN, and other company's products.
Cisco is actively developing its cloud solutions for video conferencing, as well as some tools for document collaboration. Gartner analysts rank these solutions as some of the leading in the market. The segment recorded high growth rates since early 2020.
With the development of the software and service segments, the share amounted to 45.50% in Q2 2020, compared to 41.90% in the same period of 2019. Meanwhile, the subscription software sales in Q2 expanded to 77%, up from 52% last year. The progress made in software and cyber security solutions may ensure Cisco to rise to the tier by the hardware and software developers.
Reason 3: Delayed Demand and Pressure against Huawei
According to analysts, the decline in Cisco's earnings will stop in Q4 2020, followed with a recovery. The second wave of the pandemic and the delay in the COVID-19 vaccine might slow this recovery, which means a delayed demand is quite likely.
In addition, the US imposed sanctions on Huawei, a competition of Cisco, which means the pressure may be one of the factors contributing to the improvement of the company's financial performance.
Reason 4: Undervalued Stock and High Dividend Yield
Currently, Cisco stock is undervalued by the P/E (13.80 against the average of 33.20 in the IT sector), while Cisco also has a high dividend yield of 3.50%. As a result, the company's securities look attractive for buying, especially with the leadership in the software sector.
How to Use the Idea
- Buy Cisco shares at $36.10.
- Allocate no more than 2% to 3% of your portfolio amount. To build a balanced portfolio, you can use our analysts' recommendations for an USD or a EUR portfolio.
- Sell the stock when the price is at $46.50 per share.
How to Buy Cisco Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Online Store: This is the easiest way to do it. Add the number of shares you want to buy to the cart and pay by credit card. Once the transaction is processed, the purchased shares will appear on your investment account.
Freedom24 Web Platform: Go to the Web Terminal section, type CSCO.US (Cisco ticker in the NASDAQ) in the search box, and select Cisco Systems in the search results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search box that shows up, type CSCO.US (Cisco ticker in the NASDAQ), and select Cisco Systems in the results. You will then see Cisco stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Cisco shares: Invest into the growing telecom leader!
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*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.