Cisco (CSCO) has had a lot of challenges like many other global giants this year. But the company has continuously been overhauling certain divisions and made some smart recent acquisitions that make it a very attractive company to consider researching for a long term investment. At the same time, the recent movement of the stock also gives us short term income opportunities I would like us to take a look at.
Cisco Buys ThinkSmart
One of the reasons that Cisco has come into favor as a long term investment right now is because of some of its acquisition decisions. One of the best ones I have seen is the recent purchase of ThinkSmart which will enhance Cisco's wireless network service by providing location analytics. ThinkSmart's technology enhances a wireless network infrastructure with location analytics for service provider and enterprise customers. It collects information within a defined venue, such as traffic patterns, time of day, and dwell times. This information will help Cisco customers run a tighter ship by making sure staffing levels are up to par, reduce consumer waiting times, thus improving customer flow. These are all designed to better the customer's experience. ThinkSmart's network and Wi-Fi location analytics capabilities can help the customer Wi-Fi experience in public venues such as retail locations, hotels and airports.
Not only was that a great business move, but the overall changes in the company (as well as a nice dividend increase) have made some analysts bullish on the company long term. It increased its dividend and revenues continue to come in at a decent pace. The company's overhaul of numerous product lines (routers in particular) has been well received and momentum should carry the company into 2013 very well. Analysts consider Cisco as a "safe harbor stock:" even in an unclear economy. Though the U.S. looks like it is stabilizing, it could quickly unravel if the European situation continues to worsen.
Technically Speaking
Cisco had a nice surge up from mid July through mid August with a crescendo on the last day-gapping up. Since that time it has formed a plateau and is moving down slightly. It almost looks like it is filling that gap from mid August. As I observe this stock, I am not sure if I would call it bullish or bearish. It has been neutral with a bearish lean lately. The RSI is following the stock and reveals nothing new. As it has moved down slightly, the indicator has just reached bearish territory. It was about the first of September that the MACD MA's showed a bearish cross over also. Even though it has a bearish lean, it looks like it is just starting a bearish trend. But all these observations are premature.
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The Options Play
The stock is presently trading at 18.78. I need to make a directional choice and when I do I must make a conservative trade because direction in this case is not very clear. For this reason, a conservative trade would be to make my first purchase (in the money) of whatever direction I am going. A lot of this decision will also be based upon the choice of options. I am going to move toward the bearish side since this is the short term direction of the stock.
- Buy the November put with a strike price of '19' (priced at $0.99)
- Sell the November put with a strike price of '18' (priced at $0.55)
- Net Debit to Start: $0.44
- Maximum Profit: $0.56
- Maximum Risk: net debit
- Maximum Length of Trade: 2 months
Reasoning behind the trade
- Short term direction appears to be bearish
- Markets as a whole are reserved because of Europe
Cisco is in favor as a long term investment right now with analysts and it is a good stock for the diligent investor to research. Short term, it also offers income strategies designed to enhance one's portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
