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As the world's largest supplier of computer networking systems, many investors don't consider Cisco Systems (CSCO) to be much of a growth story. After all, with sales of over $46 billion last year, how much more networking equipment could they sell? The answer is more than you may think!

With routers and switches still evolving at a very high rate, Cisco is still a long way from reaching its maximum potential. It is also becoming an excellent value once again. After a good quarterly report in May, shares popped sharply and continued to climb until the next report in mid-August. Now Cisco has fallen back to earth, currently trading for $23.31, or about 12% below where it was just weeks ago, and I think that it represents a tremendous value at this time.

Cisco: present and future

Cisco classifies its product lines into four segments: switches (32% of total revenue), routers (18%), new products (48%), and other (2%). Switches and routers are pretty self-explanatory, but what about the "new products" segment. This segment includes the former "advanced technologies" segment, and produces products for home networking, security, storage area networking, wireless, video systems, and more. The company views the new products segment as their main potential source of future growth. Cisco has described its "new products" segment as a collection of ideas that have strong potential to become billion-dollar businesses.

Another area where Cisco has some growth potential left is internationally. Even though they are already the world's largest supplier of networking systems, over half (55%) of their business comes from North and South America. Europe and the Middle East make up about 28%, and surprisingly, Asia accounts for just 17% of Cisco's sales, and represents a nice opportunity for the company going forward.

Cheap stock, solid growth, good yield, etc.

As the heading implies, Cisco's stock is pretty cheap right now, trading for just 11.5 times 2013's expected earnings of $2.02 per share. While this sounds good all by itself, also consider that Cisco has one of the best balance sheets in the market, which includes over $34 billion in net cash (cash minus debts), and when this is taken into account, the company's P/E drops to just 8.4, which is even better.

Revenues are expected to grow by 5-6% annually over the next few years as wireless and data center technologies continue to evolve, and earnings are expected to grow a little faster than revenues due to the company's cost cutting activities. Specifically, the consensus calls for Cisco to grow its earnings by around 8% annually over the next few years. Not the most exciting growth in the market by any means, but pretty impressive for a company whose business trades for a single-digit P/E. The company also has a very good dividend of about 2.92% and has done a great job at increasing shareholder value through buybacks, with the total number of shares falling by 8.6% in the past three years.

Also to consider: Juniper and IBM

Juniper Networks (JNPR) is another networking equipment maker, and is much smaller than Cisco in terms of market cap. The company produces a variety of routers, Ethernet switches, as well as Junos, Juniper's own network operating system. Over the past few months, Juniper's share price has risen even more than Cisco's, and shares are beginning to look a bit too expensive right now at 17.4 times this year's expected earnings. Even when taking the company's cash out of the equation, the P/E of 15.8 looks a bit too high for me, especially considering the consensus projects earnings growth of 11.7% and 9% over the next few years.

Although it is not a pure networking play, I chose to include IBM (IBM) in this discussion because it trades at an excellent valuation and is more diversified in terms of its revenue sources. For instance, IBM generates about 20% of its revenue from its hardware products that provide businesses with their computing infrastructure; the company has an enormous service business as well as a thriving software segment. Unlike the other two companies mentioned, IBM has underperformed lately, and is trading for about 13% less than the share price of just a few months ago. Shares trade for 10.8 times this year's earnings, which are expected to grow by about 9% annually going forward.

Conclusion

While Juniper is an excellent company with very high growth potential, and IBM is definitely on sale right now, Cisco is the clear winner of this comparison, in my opinion. In terms of combining stability, yield, value, and innovation, Cisco simply cannot be matched by any of its peers.

Source: Cisco Won't Be On Sale Like This Forever