Cisco Shares Plunge, A Buy Opportunity!

Cisco Systems CSCO
Chart courtesy of the Globe and Mail

Cisco Shares (CSCO-Q) plunged on the Nasdaq today, more than 16% in early trading to close at 20.52 US per share.  As seems to be the case with many stocks recently, missed earnings for Cisco below analysts’ expectations caused the massive sell-off this morning.  Cisco’s share decline also rippled throughout the technology and communication sector.

In a previous article I wrote about Bad News Investing, and how panic selling can provide a great buy opportunity. I feel Cisco is now a great buy opportunity with a 16% discount (pending a few days to see where the price settles).

Not many people understand what Cisco does, which is part of the reason why it may have sold off so quickly.  Basically Cisco produces the hardware such as routers, switches, other networking hardware, and the related software that is part of web hosting and data providers. You don’t really need to understand all those things in depth. The point is when you surf the web, do online banking, use your iphone or blackberry, chances are that information is riding on a Cisco backbone.  With Smart Phones, ipads, cloud computing, and more video on demand increasing, more data = more hardware.  I can only see more need for what Cisco offers to that infrastructure on a global level.

The sell-off this morning really had nothing to do with Cisco fundamentals, the company is not unprofitable or in financial trouble – far from it. It had everything to do with poor media delivery by Cisco’s CEO regarding a decline in earnings, and the massive panic sell-off that ensued. In fact demand for Cisco products has been increasing, as pointed out in a recent Globe and Mail article: “Cisco’s customers, who cut back during the recession, have recently begun spending more on their network infrastructure, with phone companies buying more advanced equipment to handle growing smart phone traffic and corporate clients upgrading their data centre equipment. “

While Cisco is not a dividend paying stock, confirmed reports are that it will indeed start paying a dividend in 2011. it is also a $US dollar denominated stock. That means for us Canadian investors, we also have to weigh out the potential loss or gain of the US Dollar in relation to the Loonie.  That hedging could be a big win in the future, if Cisco shares increase and the US Dollar increases as well.  Tomorrow I’ll be watching Cisco like a hawk!


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