Remarks by Cisco Systems (CSCO) CEO John Chambers got me thinking about the potential for a new economy emerging in 2011 and beyond so, it’s only fair that I begin my next stock market portfolio with shares of Cisco Systems (CSCO). (See my 8:30 a.m. post today for more on why I believe we’re seeing the beginnings of the next stock market and what it might look like https://jubakpicks.com/2009/09/25/its-a-long-way-down-the-road-but-i-think-we-can-see-early-signs-of-the-next-stock-market-and-its-not-going-to-look-a-lot-like-the-last-market-or-todays-either/ .)
I’m buying these shares today for my 12-18 month Jubak’s Picks portfolio. Cisco is also a member of my long-term Jubak Picks 50 portfolio based on my book The Jubak Picks.
In a conference presentation Chambers focused on what Cisco calls its advanced technologies business segment. This is a collection of businesses that each has the potential to become $1 billion businesses. Chambers said Cisco had identified 30 such opportunities. (The advanced technologies segment accounted for about 29% of the company’s revenue in fiscal 2008.)
At the conference Chambers stress the huge opportunity for Cisco in the smart grid, the effort to turn the nation’s antiquated electrical distribution system into a two-way communications network that can control energy use. But you can get a sense of where else Cisco thinks the opportunities are by looking at the areas its advanced technology segment has targeted. They include unified computing, cloud computing, the smart grid, embedding video in the Internet and other communications networks, telepresence over the Internet, Internet security, application networking, and storage area networks.
What makes Cisco a good place to start a portfolio of investments in these emerging technologies is that 1) the company’s got the cash–$35 billion as of the end of July 2009—and the cash flow to fund growth in these areas even if it takes years and years, and 2) the company’s long experience in growth by the acquisition of small technology companies means Cisco has a lot of experience in growing these businesses without strangling them.
I’m adding the stock to Jubak’s Picks with a target price of $28 a share by June 2010. (Full disclosure: I will buy shares of Cisco Systems for my personal portfolio three days after this is posted.)
Jim,
The message I’m getting from you and others is that now is not the time to invest big in stocks for a long position. Yet your description of Cisco indicates that it’s buying into the next (long-term) trend. So, would you be planning to probably hold it through any drop in the market – no stop-losses? Thanks.
Nice to get a 5% return in one day. Makes that dividend seem rather unimportant. Actually CSCO’s dividend is pretty close to what I get from my Vanguard money market fund. Jim , do you have any thoughts on CSCO taking out a smaller competitor like Polycom(PLCM). Thanks.
Jim- I am most intrigued by the notion of CSCO as a sort of venture capital fund [with solid tech production and position and profits as icing on the cake.] In your book, you always mentioned an alternative fund or two for the one-shot challenged amongst us- could you get a column out of other companies that are putting their money to work in venture capitalism as Cisco is?
I too would much prefer to see a decent dividend from CSCO, but sometimes that dividend money is better put to work to produce a much higher long term ROR.
If you look at the chart for the entire NASDAQ, you’ll see pretty much the same pattern. After the 2000 crash the entire technology sector went no where. But this year, techs have been one of tghe strongest sectors since the March 9 low. Tech customers have done as little spending as they could over the last 5 years, which has led to quite a bit of pent up demand that I think we’ll see reflected in orders in 2010.
While I normally defer to the stock picking acumen of Mr. Jubak, I heartily disagree with the selection of Cisco. While a well-run company, they haven’t been able to break out of the 20’s range in the last 5 years (with the exception of a short stint in October around 30). Since there is no dividend, it’s an awful poor rate of return, well run or not. What strategy change has Cisco affected which will cause it to break out?