Wednesday, July 1, 2015

Seeking Alpha: Can Cisco Pull Its Weight As A Barbell-Type Pick?

A stock like Cisco (NASDAQ:CSCO) isn't really part of my normal beat, as I prefer to write about far more obscure companies. And yet, I do like to have stocks like Cisco in my portfolio - I find a lot of value in looking for well-established companies trading below long-term fair value, as I find they help reduce the volatility in portfolios that include far riskier stocks. This is basically a barbell strategy where one "bulge" is higher quality, lower-risk picks and the other is lower quality, higher-risk picks; when you can get a better return out of the high-quality end, it can really add to your returns.

In my view, Cisco seems like a reasonable (if imperfect) candidate. It doesn't take particularly generous assumptions to drive a fair value about 10% above today's level, but if management can cut costs and/or drive better sales of higher-margin products, there could be worthwhile upside. There is a well-known and widely reported risk that the basic operating environment Cisco serves is in the early stages of a fundamental transformation that will devalue high-margin hardware, but I believe Cisco is already taking some reasonable steps to offset the risk.

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Can Cisco Pull Its Weight As A Barbell-Type Pick?

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