Cisco Systems, Inc. (CSCO): Not The Best, But Good

Risk factors to keep in mind

Coming back to my point of potential business risks, one of my biggest worries regarding Cisco is the slowdown in Asian markets. As per the earnings call, Japan and China grew orders by just 1%. These two markets have seen phenomenal growth in past years, and hence a sudden slowdown can become hazardous for the company’s overall revenues. The other emerging countries like India and Brazil performed well for the company, giving it double digit growth rates.

Another challenging aspect for Cisco is the fact that markets are transitioning at a fast pace and customers are willing to switch to new and better hardware and software products. As I mentioned, Cisco’s size of operations enables it to experiment and adapt to the changing demands of its customers. In order to keep pace with market transition, it is making considerable changes to its product portfolio, and as such increasing business risk. For instance, the company is heavily investing in its SDN strategy (Software-Defined Networking) to provide customers with complete solutions regarding network programming.

The bottom line

I began this article by stating that Cisco Systems, Inc. (NASDAQ:CSCO) has been successful in beating Street estimates even under tough macroeconomic conditions, and I think this is the one thing that makes me confident about this stock. Moreover, Cisco’s valuation is modest, with a P/E of approximately 13, and its tradition of creating value via share repurchases and dividends more than makes up for the risk of downside movement in share price. In my opinion, it makes sense to have this stock in your portfolio.

The article A Modest Industry Leader: Cisco originally appeared on Fool.com and is written by MihirMehta.

Mihir Mehta has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Mihir 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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