It is May of 2016, and the bull market’s charge has come to a standstill after this year’s peak was seen in April. Whether that continues remains up to be seen, but the S&P 500 is now valued at close to 17.7 times expected forward earnings, according to Standard & Poor’s itself. Many investors are now wondering which stocks they should be buying or selling, and they have to be considering how long they should keep their positions.
In an effort to avoid the current whims of the daily and weekly market forces, 24/7 Wall St. is reviewing companies with shares that can be held for years by investors. Cisco Systems Inc. (NASDAQ: CSCO) was just renamed as one of the 10 stocks to own for the decade in that light. Believe it or not, Cisco was the only technology stock that was picked for a decade-long hold.
Keep in mind that Cisco’s stock actually has underperformed the broader market, with a mere 25% gain since late 2010. Still, the reality is that the average gain of those 10 stocks has been over 100%. What Cisco has going for it is a deeply entrenched networking and communications infrastructure business that is unrivaled in breadth of products and scope. It is also establishing deeper ties within China.
With Chuck Robbins now in as chief executive officer after a two-decade tenure of CEO John Chambers, with Chambers remaining as chairman, the team is now more nimble in its grouping efforts. That is at least the message being telegraphed.
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Cisco has continued buying back stock at a massive rate, as one of the biggest buyers for all of 2016. It also has juiced up its dividend yet again and has the highest Dow Jones Industrial Average tech stock yield at about 3.9%.
Cisco is the one company dominating the networking and communications above others. Its growth has been hampered by the slowness in global growth markets of Brazil, China, Russia and others. But now it actually might start to win from the U.S. dollar’s strength taking a pause.
Cisco recently scheduled its earnings call for May 18, 2016. This “own for a decade” call is in no way meant as a prediction tool for any individual earnings report. What it does signal is that if there is ever another sharp pullback, then that is when long-term investors can become more aggressive.
In an effort to remain balanced, here are several recent trends that play into (or may even sound against) it being a stock to own for the decade:
- Deutsche Bank thinks Cisco can win from ongoing cable and telecom spending.
- Cisco was given an unusual downgrade in April by Merrill Lynch to Neutral from a long-term Buy rating, but the firm actually raised its price target to $30 from $27 despite not seeing any great catalysts ahead.
- Cisco’s bullish and bearish outlook for 2016 called for almost 16% gains.
- See the analyst calls made after the February earnings report.
Cisco Systems is expected to keep growing earnings in 2016 and beyond, with revenues being mixed. It is perhaps important to keep in mind that Cisco is a serial acquirer for new technologies with a view of a decade out. Some of those acquisitions come with great upside, even though many fail to ever materialize into money-making operations.
The fiscal 2015 results were $2.21 in earnings per share (EPS) on $49.16 billion in revenue. Thomson/First Call has estimates ahead as follows:
- For 2016, $2.30 EPS on $49.0 billion in revenue
- For 2017, $2.38 EPS and $50.22 billion in revenue
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Again, here are the 10 stocks to own for the decade.
Cisco shares were recently trading at $26.50, with a consensus analyst price target of $29.62. Its market cap is $133 billion and its 52-week trading range is $22.46 to $29.90.
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