GEMS: Used to be very depressed assets that may be on the verge of starting a new bull market.

CSCO. Source: Tradingview.
Cisco’s Recent Slump
During the company’s last earnings announcement, management harped on the slowing macroeconomic outlook and the ongoing US-China trade war, despite once again delivering solid financials and beating estimates. This really dragged on the stock as it has fallen from nearly $60/ share in July to the mid-40s. This trade spat may be far from over, but much of the market has brushed off this news as if expecting an eventual deal and pushed to all-time highs. This has not been the case for CSCO. The stock hasn’t received much benefit from the overall market and seems to be held back by the US-China tiff more than most. We think this provides an intriguing opportunity in the tech giant.
Looking Ahead
Cisco’s internal business model is not only pushing towards more cloud-based networking and software from their prior hardware and networking, but also leading the 5G charge. This isn’t just the next frontier in the Internet of Things and digital world, this is the battleground for world leadership and control.
Cisco aims to benefit from this and has not been shy about acquiring businesses to boost their 5G realm as global internet traffic continues to rise. Acacia Communications was bought for $2.84 billion in cash this year, increasing their optical portfolio which had consisted predominantly of short range data center connections, to now long-haul and undersea capabilities as well.
One exploding internet market in particular, India, is a key target for the company. With an already strong foothold in this burgeoning economy, Cisco is primed to capitalize on the estimated $70 billion worth of investment coming from India as they expand online.
Cisco is a cash flow machine, and while continuing to expand and look investment opportunities, they also regularly reward their shareholders. With strong dividend growth that currently yields almost 3% and huge share buybacks, Cisco remains one of our favorite ways to play the EEUU and China Tech Wars.