Sell Cisco, Buy Sysco (CSCO, SYY)

Everyone and their grandma is pronouncing the return of data networking leviathan Cisco (CSCO), which we find premature.

Cisco's push into consumer electronics/video delivery will most likely compress margins, so that stock's not for us, at least not for another 6 months. So we're ditching routers in exchange for something more comestible -- value.

Analyst Greggory Warren makes the bull case for the #1 player in US food distribution:

Sysco exhibits the very traits we look for in a wide-moat company. Being the market leader in such a highly fragmented industry allows Sysco to grab share from weaker competitors and gives it prime access to customers and acquisitions.

We believe part of Sysco's success stems from its unparalleled economies of scale. The food distribution business has high fixed costs, which means that only companies capable of spreading those costs over a larger base will generate above-average returns. Finally, Sysco's investments in technology and in its distribution network have allowed it to lower its procurement and delivery costs and cement its position as the low-cost provider in the industry.

The report fails to mention that Sysco is a terrific leading indicator when one is picking restaurant stocks, as Sysco is firmly embedded in the value chain of most restaurant big-names.

SYY 1-yr Chart

Comments

[AZCO]

hHw can I compare Syscos competitors?

[DanielJacome]

AZCO, email me and I will send you a comp list and then you can run some relative valuations and have a base to which to start printing the Ks and Qs