Chart Of The Day (1): Cisco Systems Helping Hand (CSCO)

Cisco Advances As Other Big Cap Techs Slump

Cisco Systems (CSCO) is now practically alone among Nasdaq 100 large capitalization technology stocks.  Not only does it remain in a strong uptrend, but one that’s accelerating.  This raises the question of why now?  Technology companies were completing THEIR “Parabolic Uptrends” last summer.

Most of those are now in well defined downtrends and are as much as 25% lower than their late summer highs.  Why would CSCO be different?

 

 

 

 

 

 

 

 

 

 

 

 

 

Cisco By The Numbers

Here’s how CSCO compares to some other Technology Giants:  (All figures supplied by http://www.macrotrends.net).

                                     Dec. 7, 2018                      Using Trailing 12 Mos.                                  5 Year  Growth In

Company                  Market Cap              Price/Rev.            Price/Oper Inc.                  Revenues            Oper. Inc.

Cisco                                 $220 B                           4.5                                  17.9                                         1.4%                        21.8%

Apple                                $821 B                            3.1                                  11. 6                                       55.6%                       41.7%

Amazon                           $797 B                            4.5                                190.7                                        191%                         518%

Google                             $728 B                            6.6                                 27.9                                        140%                          89%

Microsoft                        $808 B                           7.3                                  23.1                                          41%                         31.2%

(Note: Market Capitalization numbers are as of the close, Friday, December 7th, 2018.  Ratios use trailing 12 months Revenues and Operating Income).

Cisco’s numbers do not seem to explain the unusual strength in its stock price.   While CSCO does not have multiples that are excessive, the Company’s growth is relatively anemic.  Revenues up a scant 1.4% in 5 FISCAL YEARS!

Who Is Buying Cisco and Why?

While touting the stock, website Motley Fool provides the answer.  After last year’s Corporate Tax Cut, Cisco recaptured $67 Billion that was “trapped” offshore.   U.S. Corporate tax rates, then 35%, are now 21% which gives companies like CSCO  access to the funds with less surrendered to Uncle Sam.  (https://www.fool.com/investing/2018/10/12/could-cisco-systems-inc-be-millionaire-maker-stock.aspx).

Cisco management has already spent a substantial portion of the repatriated funds on buying back its stock.    Management compensation, which is typically tied to stock performance,  creates a temptation to “overpay” for shares to keep prices high.

Ill advised buybacks can be disastrous for a Company as they have been for both General Electric and General Motors.   (https://www.zerohedge.com/news/2018-11-27/gm-ge-were-both-victimized-same-ponzi-scheme)

Cisco As A Short Sale Candidate

The “Parabolic Up Trend” is almost always a sign of a MAJOR TOP.   Once the pattern is violated, odds are that CSCO will collapse like its large market capitalization technology peers.  Keep in mind, though, short selling involves substantial risk.  Always do you your own homework!

 

Be Informed, Not Misled!

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