Old Growth and the transition
Cisco Systems, Inc. (NASDAQ:CSCO) is a growth story from the 90s if such a time has not yet fallen into myth. It achieved $77 in 2000, but has been near $20 for most of its life after the bubble burst. The company has been strong in the last 10 years with fundamentals improving. It has a massive cash mound and has done a good job of diversifying its business. A lot of the articles focus on a return to the heady days of growth, but Cisco Systems, Inc. (NASDAQ:CSCO) can never be a growth stock again. Drop the dream and focus on the reality. Cisco Systems, Inc. (NASDAQ:CSCO) recently beat on revenue and saw the price jump up to $24, but has not really gone beyond what it accomplished on the first day.
VMware, Inc. (NYSE:VMW) is an example of a company hitting a transition. The market is not going to wait for the company to catch up to its valuation, but just like it overreacted to the growth story, it will overreact to the transition. 2013 is a slow year for VMware, Inc. (NYSE:VMW) specifically and the economy generally. The years afterward are likely to be strong. Within one year, companies might start testing SDN, which VMware got in early by buying Nicira.
Virtualization will only continue to grow and VMware, Inc. (NYSE:VMW) is a leader in that. It is also a top player in the cloud. The news that the company was cutting jobs on the left and adding jobs on the right was good. That means the company is innovating while being conscientious about head count and projects that need trimming or closing.
Conclusion
Growth stocks are never handled right. As with most things, the scales tip too much in one direction whenever anything happens. This is not a question of maintaining. When VMware, Inc. (NYSE:VMW) was at $105, I thought it was extremely overvalued and analyst projections for growth were absurd. Qualcomm is probably not going to see a decline as much as VMware, Inc. (NYSE:VMW), so it is a hold for people who own it, and the stock has mostly recovered any dips it saw due to shaky investors.
That might already be underway, but I think Qualcomm is definitely a nice investment now that it offers a dividend to take some of the pressure off growth. VMware, Inc. (NYSE:VMW) is likely to do well over the next four years. Cisco Systems, Inc. (NASDAQ:CSCO) has held $24 after a brief cooling off following its post-earnings run, and it could form a base to go higher with future earnings.
Nihar Patel has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems (NASDAQ:CSCO) and VMware. The Motley Fool owns shares of Qualcomm and VMware. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article This Stock’s Long-Term Outlook Is Still Intact originally appeared on Fool.com is written by Nihar Patel.
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