CSCO Stock: More Potential with This Competitor
Cisco Systems, Inc. (NASDAQ:CSCO) stock is another great example of a tech stock making multi-year highs. Cisco Systems stock powers the Internet, and the Internet is ever more encompassing our daily lives. People cannot live without their cell phones because being connected has become a way of life. The Internet is not just a fad that came and went during the tech bubble days; it is here to stay and will define our lives in more ways than we could possibly envision.
With that premise in mind, CSCO stock would make a great staple in my investment portfolio, but if I want to really capitalize on this theme, I need to dig deeper and find a name with a small market cap that has yet to saturate the retail investor’s portfolio. I came across the following name when I was scouring for bullish price charts: Brocade Communications Systems, Inc. (NASDAQ:BRCD) stock fits my criteria perfectly.
Brocade stock has a market cap of $4.8 billion and this is considerably less than Cisco stock’s $155.0-billion market cap. Chances are that few investors are truly informed about the name and, as a result, there is less research available. My premise assumes that lesser-known names have yet to saturate a retail investor’s portfolio and allow for greater profit potential. With that criteria met, the focus turns to the stock chart.
The following chart illustrates the uptrend that has dominated trade in BRCD stock since the lows set in 2009.
Chart courtesy of StockCharts.com
The uptrend that developed is clear as day, and is created by connecting the troughs on the price chart. An uptrend is defined by price action as the trend moves higher. Higher peaks are confirmed by higher troughs. This trend can easily be identified as the price moves from the lower left to the upper right. There should be no mistaking an uptrend from a downtrend.
BRCD stock has a long and defined trend. Every touch of the trend line has caused a rally in share prices that has lasted a number of years and has produced returns in the multiples. As of May, that trend line was touched and tested; shares have subsequently bounced and have begun to trend higher once again.
The following shorter-term price chart of Brocade stock reaffirms the bullish bias.
Chart courtesy of StockCharts.com
There are two significant signals that support the bias alluded by the uptrend.
The first is the signal generated by the moving averages. On August 12, a “golden cross” was generated. A golden cross is a bullish signal that is produced when a faster-moving average, the 50-day moving average, crosses above a slower-moving average, the 200-day moving average. Traders use this signal to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this signal. This signal warrants a long or neutral position; a short position would be unwise at this juncture.
The second signal is coming from a potential chart pattern. BRCD stock is potentially setting up a “double bottom” reversal pattern. These patterns appear as price moves lower into this reversal pattern. The pattern can be identified by two consecutive bottoms that are separated by a peak. The pattern is confirmed as a reversal when shares close above the peak that separates the two bottoms. When BRCD stock closes above $10.75, this pattern will be confirmed and will give further confirmation that the current trend is higher.
The Bottom Line on CSCO Stock
CSCO stock presents a good investment that could capture the opportunities that the Internet infrastructure landscape may provide. A problem arises, however, because an investment in Cisco stock lacks the multi-fold returns I seek. BRCD stock fulfils the criteria of a small-cap stock within the sector I seek, and a bullish price chart that alludes to higher prices. With that in mind, Brocade stock is set up to outperform its competitor, Cisco Systems.