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Cisco Purchases NDS For $5 Billion- Bloomberg

|Includes: Cisco Systems, Inc. (CSCO)

Cisco is using some of their foreign cash to acquire the Digital TV software maker NDS for $5 Billion. They are using the foreign cash to avoid paying taxes on repatriating that money back to the U.S.. I sure hope that this is a business that Cisco is committed to operating in. I've long been a proponent that Cisco should aggressively buy back stock at these levels, and the dividend could be doubled from here.

It is important to note that John Chambers had built Cisco on a series of acquisitions, but a few years back the company lost its focus by getting into the Consumer business, which caused them to slip with their Enterprise Business. Cisco is well positioned for long term growth by providing the infrastructure of the internet and they are a beast to compete with. For investors, capital allocation will be the key determinate of success as the stock is cheap at these levels with tons of cash being generated. The biggest risk is that the company blows too much capital on acquisitions like the dubious Scientific-Atlanta Inc. in 2006.

I'm still bullish on Cisco but to manufacture additional yield we have sold calls on most of the positions at the $22 strike for January 2012. By doing so we maintained solid upside potential, and even if the stock stays flat we will generate an additional 5% to the dividend, making it a high yielding stock. CSCO's P/E is drastically overstated when you look at the net cash position so the risk is quite low for the longer term investor, with the one caveat being once again, valued destroying acquisitions.

Disclosure: I am long CSCO.