Cisco (CSCO), one of the leading big wigs in the technological frontier, rests on a solid $113 billion market cap. Personally, most if not all of my networking devices are supplied by Cisco. It predominantly focuses on extending diverse networking solutions to its bombastic market. Its attractive stocks currently have alluring earnings per share figures of around $1.3. I have been lured in by this figure. Being the level minded investor and share holder that I am, I find myself perpetually lodged between a rock and a hard place. Why is this so? Quite simple, I want to know the possible direction Cisco will take. This is after keying in the formidable competition from other pace setters like Hewlett-Packard (HPQ), Juniper Networks (JNPR) and Alcatel-Lucent (ALU). All said the stocks are doing quite well. The 16%-17 % price earnings ratio gives a clear reflection.
Some of the latest news that may have a notable effect on the likely behavior of Cisco stocks is the recent exposure of Cisco's imminent plans to buy NDS for around $5 billion. Buying NDS, a software provider that focuses on video streaming and security, will directly influence the current stock price of $21 per share. By buying NDS, I believe that Cisco will have the strategic leverage to offer its clients a worthwhile experience in video streaming and security enhancement. In doing so, it will cast its net over a wider market and increase its revenue. Increased revenue will lead to a higher market cap which will consequentially lure in investors. A higher market cap will increase stock prices in an unprecedented fashion. Similarly, increased revenue will trigger an exceedingly high level of demand from investors from the pig disposition as they will not factor in other aspects. Increase in demand inevitably sparks off an increase in price- basic economics.
Trends also have a big role to play in Cisco's future. Currently, the internet has secured strong anchorage in developing countries in the Asian and African continent. The need to minify the gap between first world and third world has spawned a lot of prevalent trends. Emerging markets feel the need to acquire high end networking devices in order to catch up with their first world counterparts. I believe that Cisco's inherent motive to consolidate the human network under a converged network will help fuel the growth of emerging markets. Cisco is and will continue to place profound accents on improving internet service in emerging markets. This means that Cisco will grow exponentially in a few years to come. Although the speculation may be labeled as biased by critics, it bears weight. Cisco already has a foothold in emerging markets and magnifying its presence will be a downhill task. This is likely to affect the stocks in a number of ways. The most prominent way will be an increased level of confidence in the Cisco stocks. This means that bullish investors like me will have a green light to invest in more shares and trade more frequently. The current earnings per share of $1.3 will definitely increase if this speculation materializes.
As far as acquisitions are concerned, the impending buying of NDS still plays an instrumental role in the likely future of Cisco stock. Investors deem the move as brave and potent with entrepreneurial spirit. Personally, I have unfaltering convictions that such a perception greatly increases demand. I believe that investors are aware of the shadowing success that this move will bring. Big time investors and other blue chip co-operates equally portray the move as an indication of Cisco's willingness to partner and collaborate. If the acquisition proceeds, it is likely to trigger some shifts in the stock market. Movers and Shakers are likely to invest in Cisco shares. This increased demand in the high end market will greatly increase stock prices.
I cannot overlook lawsuits and legal proceedings. The issue of law plays a very important role. Last year, a section of the Falun Gong group insisted that Cisco was aware of the purpose that its supplies to China would have on the crackdown on religious movements. This lawsuit suggested that Cisco intentionally offered network equipment that was customized to block specific IP addresses that were thought to be affiliated with the Falun Gong group. The mere fact that Cisco has been able to battle this lawsuit since last year has injected a high level of confidence in me. I am certain that Cisco has a strong legal foundation to stage all fashions of combats against lawsuits. Its success manages to overshadow these lawsuits and I believe that this goes a long way in ensuring the stability of its stocks. Presumably, investors with an inclination similar to mine rally the same idea. I am positive that the fashion through which Cisco manages its legal issues will see the shares outstanding increase from the current $5.3 billion. The earnings per share of $ 1.3 may also increase in leaps and bounds.
Alcatel-Lucent, Hewlett-Packard and Juniper all pose great competition to Cisco. Although there is a big disparity in Cisco's $113 billion market cap and Hewlett-Packard's $47 billion market cap, Hewlett-Packard interestingly manages to generate more revenue-a whooping $123 billion compared to Cisco's $44 billion. I believe that this may have a negative impact on Cisco's earnings per share in the short run. However, the long run avails a better picture all together. I am confident that these are mere figures and that Cisco has a strategy for countering such competition. Its service package leans towards being a utility IT service, so to speak. This means that its future is void of uncertainties and it is more likely to grow in comparison to Hewlett-Packard.
In conclusion, I have come to a decisive standpoint on the future of Cisco shares. I believe that the rate at which it is expanding its portfolio will greatly increase the value of its stock in years to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.