I'm beginning to realize more and more that networking giant Cisco (CSCO) just might be a bit smarter than Wall Street is willing to give it credit for. As an investor, if you have been paying any attention, you would realize that the company is now subtly positioning itself for the type of growth not seen since the good old days of the dot-com era. Except this time, however, it will be real enough to sustain.
When discussing Cisco recently, I have now realized there are three major reasons why it has become an investment that should be considered now, and for the next four years. The stock should triple by then to reach $60.
First, I discussed in an article last week the growth potential that exists within the enterprise as it relates to tablet devices and smartphones. A lot of which has to do with how BYOD or "bring your own device" into the workplace has taken off to the extent where Apple's (AAPL) iPad, as well as various other devices on Google's (GOOG) Android platform. Though were initially aimed at consumers, they are proving extremely popular in corporate enterprise. This is an untapped market where Cisco can leverage its dominant corporate footprint to integrate its own Cius device.
For Cisco investors, the second thing to get excited about is the demand in networking bandwidth for data and traffic that will increase as more mobile devices continue to grow while the content sizes continue to increase. A recent study by analysts project that smart phone usage on a global scale will only continue to explode upward. When you couple that with Cisco's own recent survey, called "Global Mobile Data Traffic Forecast Update, 2011-2016" the issue gets a bit more attention-grabbing, as it showed that global mobile data grew by 133% during 2011 - the fourth year that traffic more than doubled.
Probably the best reason to believe in Cisco is that the company continues to show that it believes in itself. Last Thursday it acquired NDS, a provider of content streaming and security software, for about $5 billion to help expand its next-generation video services. The company also specializes in software that allows TV content to be delivered to a variety of devices, while preventing unauthorized access. Cisco is hoping that this deal will help grow its revenue from TV/video considerably. Upon the announcement, the first thing that I thought to myself was: Will this work?
What Cisco Sees
As an investor, I'm hoping that the company thought long and hard about this decision and will execute in a manner that support the added strategy without sacrificing its bread and butter routing and switching business. Meeting the customer's needs and capturing markets as it shifts appears to be a constant driver of the company's decisions, and it seems that the NDS acquisition fulfills that approach.
But for me, it is what NDS does that makes this deal more interesting. The company's expertise is in enabling content and service providers to deliver new video solutions that leverage the cloud and drive new monetization opportunities and service differentiation.
It's not by coincidence that Cisco acquired NDS on the heels of its recent study suggesting that content delivery services will be at an increased demand over the next several years. It is clear that the company understands that mobile data services are well on their way to becoming necessities for many network users - if they are not already. Clearly, it can be argued now that mobile voice service is already considered a necessity, and mobile data, video, and TV services are fast becoming an essential part of consumers' lives. So for this reason I think it saw NDS as an opportunity that it could not pass up - if nothing else, it wanted to play defense to prevent rivals Hewlett-Packard (HPQ) and Dell (DELL) from a chance at an offensive play.
It's hard to look at Cisco now and not see the potential for a triple of the share price from current levels - $60 is not out of the question. The company has an opportunity in the tablet and devices market from the standpoint of the enterprise, it is well positioned for the increase in data demand from a bandwidth perspective, and it continues to make acquisitions to ensure that it remains focused on the customer needs as well as market transitions. At $20 and trading on everything but its true potential, Cisco remains a steal.