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.
Follow this link for more:
Can Cisco Pull Its Weight As A Barbell-Type Pick?
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