It has been a tough week for many stocks in the market, including Cisco Systems Inc. (NASDAQ:CSCO). Aside from losing the battle against Microsoft (NASDAQ:MSFT) in the European court regarding the Skype acquisition, the tech giant has not been consistent in terms of performance. The rise and fall of the stock does not convince several investors that the company will be able to handle the competitive pressures and financial operations.
The share's plunge started after Cisco announced its first quarter results last November. One of the reasons for this is that analysts believe Cisco is poor in managing its tech spending. Citigroup tagged the company with a sell rating and a price target of $18 per share. Unfortunately for Cisco, the shares did go down and closed with a loss. According to Ehud Gelblum, an analyst at Citigroup, Cisco has numerous challenges to face right now. Losing market share and the rivals doing well are among the reasons why Citi gave the tech company a sell rating.
With everything that is happening to Cisco, it is considered one of the worst stocks on the Dow Jones roster right now. What is odd though is that Gelblum gave Alcatel-Lucent (NYSE:ALU), a French telecommunications firm, a buy rating. The rating actually helped ALU as shares soared by 3.7%. Many would agree that Cisco is indeed going through tough times, but compared to ALU and other rivals, Cisco already has a history of dominating the market. The company also has billions of funds in the bank and it is therefore far-fetched that telecoms would suddenly love Alcatel. In truth, ALU is not a threat to Cisco even if the two companies' products are competing against each other. In this side of the battle, investors can safely rule out ALU's risk to CSCO.
Nevertheless, Cisco is still one of the most actively traded stocks on NASDAQ. It is also one of the tech stocks with the most number of gurus who invest in it including Donald Yacktman and Jeremy Grantham. In the second quarter of the fiscal year, at least 45 gurus bought shares in Cisco Systems Inc. A quarter passed and only 16 of them remained. The others sold their shares despite the increasing revenue of the company. Perhaps the lackluster net income and Cisco issuing almost $940 million of debt in three years have a say in the stock's poor performance. However, when looking at the debt level of the company, it is still acceptable. When considering the price of the stock and the current price to earnings ratio, Cisco is definitely an undervalued stock.
As analysts provide their insights as to why Cisco is weak in the market, CEO John Chambers blamed the inconsistency in the macro setting. He also pointed out the effects of the shutting down of the federal government as well as the China NSA spying dispute.
Cisco stock falls down, but often rises again. The unpredictability is perhaps the one thing that agitates both investors and its supporters. Overall, the company did gain in shares by 6.26%. However, its rivals -- particularly Brocade (BRCD) -- jumped 58.16% this year. The huge difference may put off investors, causing them to either hold or sell the stock, as Citigroup suggested.
Despite the problems, Cisco believes that the company is well-prepared. In fact, it looks like it will expand its product portfolio next year as it plans to capture the cloud computing market as well with Cloud Fusion. The upcoming product as Cisco claims can protect companies' cloud servers from NSA snooping.
In general, the stock continues to be attractive especially as the company has steady profitability. Cisco has strong free cash flow right now with over $30 billion cash, and is continually growing by 8% in earnings yearly. Then, there's the dividend payment of 3.2%. With these numbers and facts, investors should not be worried because Cisco is a stock that still remains buyable.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.