Cisco Targets Internet of Everything

07/29/2013 7:00 am EST

Focus: STOCKS

If you missed the boat on the last Internet boom, you definitely don't want to miss this one. Within the next four years, the size of the Internet is expected to quadruple in size, says Christian DeHaemer in Energy & Capital.

By 2016, annual IP traffic is predicted to reach 1.3 zettabytes (to put that in perspective, there are one trillion gigabytes in a single zettabyte.) There are several reasons for this growth in traffic:

Alongside rising Internet traffic are diminishing fears over cloud security. The initial resistance to putting information on the cloud has eased as we have seen no systemic issues in security.

As Internet traffic and acceptance of cloud security increase, so will the cloud industry as a whole. Leading technology research company Gartner predicts the cloud market to grow by 19% to $131 billion in 2013.

The market will see major gains within this sector. How can investors position themselves for profit? One company set to reap the benefits of the growing cloud within the coming years is Cisco Systems (CSCO).

Cisco has been dominating the market for physical networking equipment—including switches and routers—for some time now. But Cisco wants to be bigger. So the company is switching gears to a new strategy focused on the Internet of Everything (IoE).

Simply defined, the IoE refers to the idea of an increased connectivity between all objects. Until now, the Internet has been a people-centered medium-but non-human objects and machinery are now gaining an increasing amount of access.

For example: Mirrors that can provide basic medical analysis by measuring temperature and pupil dilation, billboards that can target ads based on viewer data and location, and livestock being connected to the Web to monitor dietary patterns.

Cisco aims to play a major role in this revolution by connecting these objects through networking and data storage. The company is accomplishing this goal by dropping its consumer-based hardware and aggressively moving towards cloud computing.

Imagine entering a museum and automatically receiving a guided tour on your smartphone. Better yet, imagine what retailers would pay to gain access to the shopping history of potential in-store customers.

This idea is similar to the way Amazon stores your search history to recommend products, only with applications to the physical world. By creating an infrastructure of networking and intelligent location sensors, Cisco is going to provide a unique and highly-demanded service.

Cisco has some very attractive numbers supporting it to boot. The company's balance sheet shows $47.39 billion or $8.87 in cash per share with only $16 billion in total debt.

Cisco has also treated investors well, increasing dividends by 180% since 2011 and producing record revenue levels for nine straight quarters. And despite the increased dividends, Cisco has held on to a payout ratio below 30% and a dividend yield of 2.8%.

If you are looking for a solid blue chip winner to hold onto for the next two years, look no further than Cisco.

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