Cisco Systems, Inc. (CSCO), Cavium Inc (CAVM): This Stock Is on Sale, Don’t Miss It

On a sequential basis, revenue from Cisco Systems, Inc. (NASDAQ:CSCO) was flat for Cavium, but even then, the company managed to grow revenue almost 7%.

Apart from enterprise and data center, Cavium is also well-positioned to benefit from growth of wired and wireless infrastructure markets. The company cites strength in 3G/4G equipment sales. I believe that its content in 4G base stations will be another reason why revenue should get better in the future, along with margins, as the more complex the technology, the higher the margin it commands.

Also, there is the probability that Cavium might benefit from the roll out of TD-LTE by China Mobile Ltd. (ADR) (NYSE:CHL) in the Middle Kingdom. CEO Syed Ali stated on the conference call that Cavium does have a customer who might participate in China Mobile Ltd. (ADR) (NYSE:CHL)’s initiative, leading to an improved backlog later this year.

Now, considering that Huawei enjoys a strong relationship with China Mobile Ltd. (ADR) (NYSE:CHL), and Cavium had landed a design win earlier this year, I believe that the company might benefit from LTE deployment in the region.

China Mobile Ltd. (ADR) (NYSE:CHL) had launched a huge LTE tender in June, which, according to China Daily, is its largest to date. The tender is for supply of equipment for 207,000 base stations in 31 provinces as China Mobile Ltd. (ADR) (NYSE:CHL) aggressively moves to deploy TD-LTE, and an expected jump of 50% in capital expenditure to $30 billion this year indicates that there is a lot of opportunity for players such as Cavium to grow revenue.

The takeaway

Cavium is expecting improvements across the board in the third quarter, and this reinforces the fact that the company’s business is on a roll. Moreover, analysts are expecting earnings to grow at a robust 21.5% per year for the next five years and an impressive 38% next year, which makes the forward P/E of 26 times appear fairly reasonable.

So, investors shouldn’t be scared to scoop up more shares as the stock tanks since Cavium has a lot of firepower to grow in the future.

The article This Stock Is on Sale, Don’t Miss It originally appeared on Fool.com is written by Harsh Chauhan.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems (NASDAQ:CSCO). The Motley Fool owns shares of China Mobile. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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