When I looked at Cisco (CSCO) last, it was mid November. The title of the article said it all: "Should Cisco's Numbers Make Me Bullish Now?" The stock at that time was still bearish, trading at $16.85. Soon after the article was published, the stock did gap up and has not looked back yet. As to a long-term move up, this is what my outlook was:
I would expect Cisco to move up significantly in a reactionary manner following the positive earnings report. But I would ask: Do I think the company can sustain the movement now? I do believe Cisco can make a bullish run from January and into April if it is handled properly. But short term, I would not say that the stock is now changing direction.
I was wrong about the short-term outlook as the numbers did immediately turn the stock bullish. It is January and the stock is still bullish, and I want to know if it can continue to move up.
RBC Capital Markets upgraded shares of the networking technology specialist to outperform from sector perform and hiked its price target to $24 a share from $21. Why did it take this position?
"Many of the negative issues related to Cisco have subsided," analysts said in a note to clients. "Cisco's core markets are no longer under attack from Huawei, HP and Juniper and Cisco's market shares have rebounded and stabilized. Cisco has also improved its sales execution and refocused its engineering talent."
So how should we expect Cisco to perform in 2013? Some analysts believe it will expand its IT market with a bias toward software and this will increase its margins. It should be able to sustain a long-term (5-7%) growth target but expect continued caution in its short-term commentaries.
There is talk that the stock could reach as high as $25-$30 in 2013 aided by its recent acquisitions (Cariden & Meraki). The company is only planning a growth rate of (3.5%-5.5%) publicly so if analysts are correct, it should outperform its expectations.
The company aspires to become the most dominant IT company in the industry. Its current services business is projected to grow 12% annually and when an investor looks at this combined with its acquisition growth, the company is well positioned for IT growth when the markets are ready. In fact, MKM Partners expects acceleration from Cisco's product orders this year and believes the company will lead the industry in the next generation of "holistic Intelligent Networks."
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Technically Speaking
Cisco has reached a major point in its short move up. The stock is signaling an over-bought position in the RSI and I would expect a pull back at this point. Does this mean the stock will turn bearish? A lot depends on how it moves from here. Twice it has pushed against the upper Bollinger band and the MACD MA's are at a high level looking to move down. The stock is flirting with a major resistance at 42.5 and if it can push through that level, it may continue to move up.
If you are interested in an Income Play
The stock is trading at $20.55 and for a short-term income play at this point, I would like to see a break though of the $21 level before I would invest. If it breaks through on higher volume, then I would consider buying a straight call option about 90 days out. I believe there may even be room for a longer-term investment in a call option farther out of the money. I believe 2013 will be a good year for Cisco.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
