A Leader of the Next Market

09/25/2009 1:02 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Remarks by Cisco Systems’ (Nasdaq: CSCO) chief executive officer John Chambers got me thinking about the potential for a new economy emerging in 2011 and beyond, so it’s only fair that I begin my next stock market portfolio with shares of Cisco. (See my Friday morning post for more on why I believe we’re seeing the beginnings of the next stock market and what it might look like.)

I’m buying these shares today for my 12- to 18-month Jubak’s Picks portfolio. Cisco is also a member of my long-term Jubak Picks 50 portfolio based on my book, The Jubak Picks.

In a conference presentation, Chambers focused on what Cisco calls its advanced technologies business segment. This is a collection of businesses that each has the potential to become $1 billion businesses. Chambers said Cisco had identified 30 such opportunities. (The advanced technologies segment accounted for about 29% of the company’s revenue in fiscal 2008.)

At the conference, Chambers stressed the huge opportunity for Cisco in the smart grid, the effort to turn the nation’s antiquated electrical distribution system into a two-way communications network that can control energy use.

But you can get a sense of where else Cisco thinks the opportunities are by looking at the areas its advanced technology segment has targeted. They include unified computing, cloud computing, embedding video in the Internet and other communications networks, telepresence over the Internet, Internet security, application networking, and storage area networks.

What makes Cisco a good place to start a portfolio of investments in these emerging technologies?

1. The company’s got the cash—$35 billion as of the end of July 2009—and the cash flow to fund growth in these areas even if it takes years and years.
2. The company’s long experience in growth by the acquisition of small technology companies means Cisco knows how to grow these businesses without strangling them.

I’m adding the stock to Jubak’s Picks with a target price of $28 a share by June 2010. It traded below $23 Friday.

Full disclosure: I will buy shares of Cisco Systems for my personal portfolio three days after this is posted.

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