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Are Apple & Cisco Still Powerhouse Picks?

12/14/2018 5:00 am EST


John Buckingham

Editor, The Prudent Speculator

We still see the glass as half full, given likely decent global economic growth, healthy corporate profit growth, reasonable valuations, rising dividend payouts and lower interest rates, asserts John Buckingham; here, the value-oriented money manager and editor of The Prudent Speculator looks at two leading tech plays.

Prodded by news outlets, investors are surely wondering if Apple (AAPL)  has lost its magic touch, as evidenced by the share price slide from as high as $233 in October.

Apple also revamped its sales figure reporting (they will no longer report specific figures for iPhone, iPad and Mac) and offered conservative forward guidance ($89 billion to $93 billion of revenue in fiscal Q1).

What’s wild is that Apple routinely offers lukewarm projections and the company’s valuation is far more attractive than the peer-group average, with metrics like a 13.4 forward P/E, 1.6% yield and $123 billion net-cash hoard.

And Apple’s core business isn’t exactly drying up. Smartphone demand unlikely to abate soon and expensive iPhones continuing to sell well, we have long believed that product mix is more important than unit volumes.

Other product lines including iPad and Apple Music continue to thrive, while Apple has made inroads into the smart speaker and home tech market with HomePod and HomeKit.

We continue to like Apple’s seamless ecosystem and think the recent sell-off affords another opportunity to pick up a company with a terrific balance sheet, global income stream, inexpensive valuation and plenty of growth potential.

Cisco Systems (CSCO) is a tech powerhouse that specializes in Internet Protocol (IP)-based networking equipment for professional, telecom provider and residential use. At the company’s annual partner summit, CSCO announced its new “The bridge to possible” brand campaign and expansion of SD-WAN and Catalyst switch product lines.

Although some might consider Cisco to be a serial acquirer, we think the company’s recent acquisitions give it a large leg up in the cloud space as it builds its presence both in hardware and software.

Since 2017, the company has acquired Broadsoft, Skyport, July Systems and Duo Security.While it was challenging at times to ride out, we think the company’s transformation has put it on a path to long-term success and shareholders are beginning to see the benefits of those efforts.

We continue to like the strong balance sheet and believe that the stock still trades at a sizable discount with an next 12-month P/E ratio of 15.5 and a 2.8% dividend yield.

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