John Chambers Delivers, Big Investors Now Chasing Stocks

By Tuesday, May 21, 2013

John Chambers Delivers, Big Investors Now Chasing StocksThe action in the stock market continues to amaze.

When stocks go up on bad news (like last week’s higher initial claims for jobless benefits and lower-than-expected housing starts), you know you don’t want to be short.

Cisco Systems, Inc. (NASDAQ/CSCO) is a component of the Dow Jones Industrial Average, and for such a mature technology stock, it recently reported a very solid quarter.

In its fiscal third quarter (ended April 27, 2012), Cisco announced sales of $12.2 billion, for a net gain of five percent over the comparable quarter. It was the company’s ninth consecutive quarter of record sales.

Earnings grew 14.5% to $2.5 billion, while earnings per share grew 15% to $0.46 per share, beating consensus estimates.

John Chambers, Cisco’s CEO, noted improving signs in the U.S. economy and other markets. Business conditions for the company are also improving.

Like many cash-rich, large corporations, Cisco recently repurchased 41 million shares of its own common stock, spending $860 million.

This, of course, is a pittance. The company finished its latest quarter with cash and cash equivalents of $47.4 billion.

Wall Street boosted the company’s earnings estimates and share price target.

Cisco is ripe for more gains on the stock market because of its valuation.

The company also offers a dividend yield of 3.2%, which is attractive in this market. The company’s huge cash hoard also makes it highly likely that at some point this year, the company will issue another dividend increase.

All institutional investors want to see in this stock market is stability and certainty.

Cisco provided that certainty in its latest earnings report, and this is the reason why the company has leapt upward by over 10% on the stock market.

Still, the positive trading action is truly astonishing.

If there was ever a case to be made that the stock market is a leading indicator, recent action proves it. This market is way ahead of fundamentals.

Cisco hasn’t done anything for years on the stock market, although it has been slowly growing its revenues.

The company’s latest earnings report really was decent in terms of the competition and maturity in the networking and communication devices subsector.

The broadening of the blue chip breakout into the NASDAQ Composite is confirmation of the uptrend. But it is becoming even more difficult to be a buyer in this stock market when you see the key stock indices going up on bad news.

The appetite that institutional investors have to be buyers is stunning.

A majority of companies beat consensus earnings in the latest quarter. But only half of all companies in the S&P 500 beat consensus on revenues.

This is why big investors are now chasing stocks like Cisco. Top-line growth remains elusive.


About the Author | Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »

Aug. 31, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.71%
10-year U.S. Treasury Yield 2.14%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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From: Michael Lombardi, MBA
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