Asif Suria

Cisco: Compelling at These Levels

Albert, I work in the technology sector (not an accountant Moon Kil :)) and live in silicon valley. The practice you refer to has been widely criticized but also has its supporters amongst people who believe that it becomes an important part of compensation for tech workers.

As an investor I am in your camp and prefer companies like PICO Holdings (PICO) that focus on shareholder equity as a reporting metric over a company like Salesforce.com (CRM), where a large portion of GAAP earnings goes towards options granted to executives.

Cisco: Compelling at These Levels

Albert, I am in total agreement with you and Prudentinvestor regarding Cisco's dilutive stock options and mentioned as much in the comments when I stated, "but buybacks have not even been sufficient to offset dilution from options granted to employees."

This was one of the reasons I used to stay away from companies like Cisco. Sooner or later shareholders will wake up and Cisco might follow Intel and Microsoft's path of offering a dividend. Intel in my opinion is taking all the right steps towards becoming a shareholder friendly company.

The point of my article was that Cisco appears attractive from a valuation basis and since the inputs used in the analysis on a per share basis, the analysis still holds unless one of my assumptions are off.

Point well taken on the accumulation of profits over the last 15 years. I did not respond as I have not yet had the time to dig through the records to compile the information.

Cisco: Compelling at These Levels

Could not agree more on the dividends. Oracle finally found dividend religion just like Intel and Microsoft did and the stock appreciated sharply after the announcement. It is ironic that Oracle's dividend yield even at the time of announcement was just 1.25% and is probably under 1% now.

Cisco did announce a huge $10 billion stock buyback in late 2007 (talk about timing) but buybacks have not even been sufficient to offset dilution from options granted to employees.

Cisco: Compelling at These Levels

Thank you Jonathan and KJP712.

@Jolly_Rancher, sentiment was extremely negative a few weeks ago and on 3/11/2009 I wrote on my blog:

"The powerful rally staged by the market yesterday from extremely oversold levels is being construed by some as the first rebound from a bear market low but most investors appear to have a more sanguine view, dismissing the rally as the start of a bear market sucker's rally. This negative sentiment leads me to believe that the rally may be more than a one day wonder."

www.sinletter.com/ablo...

The market is up 20% since then and I expect a pull back from these levels on Q1 earnings news. I could very well be mistaken.

One Page Barron's Summary

Probably the following statement by the CEO Antonio Perez during the Kodak conference call when asked whether Kodak was on track for back to school <i>"I never said we’re going to be back to school. We’re still on track with our project. We are — I have no news really to report, and you know why I don’t want to report news until the closest possible time, the latest possible time. So but we keep investing in that business. We are accelerating things and I feel that we are in good shape, but there is nothing else to report."</i>

It is interesting to see the generic drug maker Teva (TEVA) back where it was a year ago. The run-up that started last year was in anticipation on looming patent expirations at big pharma companies like Pfizer (PFE) and Merck. I feel that the Zocor pricing move by Merck is likely to be negative for the generic drug companies like Teva, Ranbaxy, Mylan and Dr. Reddy's but would barely affect Pfizer. Pfizer raised its dividend about six months ago and I doubt they would do it again anytime soon.