Cisco Systems is a winner of a stock, this portfolio manager says

Networking company Cisco Systems (Cisco Systems Stock Quote, Chart NASDAQ:CSCO) has pushed its way back into the conversation when it comes to high-flying tech stocks and it’s no wonder, according to David Driscoll of Liberty International Investment Management, who says the company’s fundamentals are strong.

Back in the dot-com days, US tech play Cisco was the hottest name around, as the company made hay supplying IP hardware for the growing Internet market. Once listed as the most valuable company in the world with a market cap of over $500 billion, Cisco fell back to Earth at the start of the 2000s but has since done an admirable job in producing solid quarterly numbers and giving good value to shareholders.

Cisco’s last reported quarter was a prime example, with the company beating analysts’ estimates for both revenue and earnings, reporting a $12.96 million top line for its fiscal third quarter 2019, compared to the expected $12.89 billion. Its $0.78 per share EPS was also better than the expected $0.77 per share. (All figures in US dollars.)

Driscoll says that Cisco’s strength is in their ability to generate free cash flow. “I have no problem with Cisco,” said Driscoll, president and CEO of Liberty International, to BNN Bloomberg on Friday. “They’re integrating their businesses into artificial intelligence and machine learning across their portfolio. The dividend growth has been in the teens, so that’s a good sign. They generate a tonne of free cash flow and their free cash flow yield is sitting at six per cent right now.”

At the same time, Driscoll advises investors that even with the stock’s gains over the past half year, Cisco remains on the riskier side of the spectrum.

“[This year] the stock keeps going up and up but it’s better if you look at the September to December of last year in terms of price movement to get a better idea of what Cisco is doing and the volatility,” says Driscoll. “Its beta right now is at 1.11, so for every dollar that the S&P goes up or down, Cisco is going to go up or down $1.11. So, you do have a wider spread on volatility and therefore it’s riskier.”

“Be very careful. Don’t lump all of your money into one industry because if you think of technology last year, when the stock market fell 20 per cent, NASDAQ was down 25 per cent,” he says.

Last week, Cisco climbed above $58.00 per share, a level that the stock hasn’t seen for almost 20 years. So far in 2019, CSCO is up 31 per cent.

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