As a youngster in the 1950s I remember the TV series "The Cisco Kid," with Duncan Renaldo playing the flamboyant and chivalrous Cisco Kid and Leo Carrillo playing his lovable but hapless sidekick Poncho. During each episode they found themselves defending a vulnerable widow or ranch owner against evil schemers threatening their lives or stealing their fortunes.
At the end of each episode Poncho would impart his grammatically incorrect line: "let's went," and off they would ride to another adventure.
Wall Street's modern day Cisco Kid is obviously San Jose-based Cisco Systems (CSOC $24.97). Like our Old West hero, Cisco Systems started out in the rough-and-tumble wilderness of Silicon Valley, California. It was both flamboyant and chivalrous. Over the years it rescued many companies in distress by acquiring them, and unlike many in the tech boom 1990s, its fundamentals bloomed despite a stock price collapse.
Today, Cisco's leadership in all things Internet is highly trustworthy. More to the point, Cisco's stock is now selling at the relatively modest price/earnings multiple of 16.2 times the consensus earnings estimate of $1.54 per share for the fiscal year ending July 2010, and 14.5 times the earnings estimated of $1.72 for the fiscal year ending July 2011. (Full disclosure: The principals and clients of Forward Investment Advisors own shares in Cisco Systems or mutual funds that own Cisco.)
Cisco's size and historical performance have made it a touchstone for gauging the profitability of the many sectors of technology, and most notably, the progress of the Internet.
Why the accolades for Cisco? Aside from everything above, it's a stock that should look strong even to the bears telling us the stock market and the global economy are on the brink of collapse. Several weeks ago, I wrote about Michael "Mish" Shedlock, an investment representative of Washington-based Sitka Pacific Capital Management, who thinks the market and economy are vulnerable to a deflationary crash. His advice? Hold cash.
The new Cisco (Kid) Systems, however, would seem to be a star even in the worldview of Mish and many other doom-and-gloomers. Cisco currently holds $39.6 billion in cash ($6.92 per share), and is the unquestioned leader in an industry where deflation is the centerpiece of pricing.
I'm not portraying stock market bears as scheming miscreants, but they do seem to scare vulnerable shareholders with their extreme views. Owners of Cisco stock, however, should feel some degree of comfort because its fundamentals address some of their bearish concerns.
Ray Unger is chairman of Forward Investment Advisors in Madison. He can be reached at 833-9400 or at runger@forwardinvestmentadvisors.com.
