Cisco Stock Has Soared 45%, with Plenty of Upside Left

CISCO StockCisco Systems Becoming an Innovative Tech Giant

I remember Cisco Systems, Inc. (NASDAQ:CSCO) as the leading innovator of networking technology when the Internet emerged back in the early 1990s.

Of course, after some unbelievable euphoric gains until the crash in 2000, CSCO stock became comatose for over a decade, drifting in a tight narrow range with no signs of resuscitation.

For Cisco Systems, it was about re-inventing itself as an innovative large-cap technology company with a vision to the future rather than sitting around.

When I last reviewed CSCO stock, the shares were trading at just below $30.00, a level which I believed was an opportunity. Cisco Systems stock traded at a 10-year high of $34.53 on March 2, and is up 12.5% year-to-date and 23% over one year.

But, instead of being pleased with the 15%-or-so gain, my view is that the CSCO share price has more room to grow, given that it is trading at 13.60 times its 2018 earnings per share (EPS) and pays out a 3.4% dividend. Cisco Systems has a relatively attractive valuation that I feel undervalues the prospects and what the former technology darling is doing.

CEO Chuck Robbins, who took over from long-time CEO John Chambers, has much work to do to improve the muted revenue picture, and it will take time.

Trump Could Power CSCO Stock

For now, Cisco Systems has time on its side, in part due to its massive cash position of about $72.0 billion, or $14.35 per share in cash.

U.S. President Donald Trump has suggested he will make it easier for large technology companies like Cisco Systems to repatriate capital from outside of the country.

This move of capital would help Cisco Systems continue to transform from a networking company to an innovative and nimble tech giant harnessing the Internet of Things (IoT), including security, big data, cloud, wireless, and bandwidth.

These are major areas of growth in technology that Cisco Systems is now focused on, via acquiring and developing technologies that could once again make it a technology superstar.

c2

Chart courtesy of StockCharts.com

A look at the above long-term chart of CSCO stock shows the comatose position when Cisco Systems traded in a narrow sideways channel prior to the breakout from the double bottom in mid-2012. The first bottom was in 2011, followed by a second bottom in 2012.

c1Chart courtesy of StockCharts.com

The long-term breakout has led the price of CSCO shares to a nice upward trend since 2011, which was accompanied by an upward-trending moving average convergence/divergence (MACD). In late 2015, Cisco Systems stock displayed a bullish golden cross when the 50-day moving average (MA) broke above the 200-day MA in a strong upward push.

My thinking is to look at dips in the CSCO stock price as an opportunity, and not as a reason to exit.  If the upside move can hold, Cisco Systems could target the $40.00 level.