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Headquartered in San Jose, California, USA, Cisco is a leading supplier of communications and computer networking products, services and systems. The company was founded on December 10th, 1984 by Leonard Bosack and Sandy Lerner. The name ‘Cisco’ was a shortened version of the city name ‘San Francisco’, and the founders strongly believed, from the very beginning, that data transmission speeds could be enhanced by using smaller, low power-consuming and less-heating devices that would leverage the profound power of fibre optics. Cisco primarily produced inter-networking routers which they sold to universities, aerospace centres, multi-branch companies and several other government facilities. By the end of the 1980s, Cisco already had a major head start in the now emerging networking industry, and the company consolidated its gains as the industry exploded in the 1990s. Throughout the 1990s, Cisco grew to become one of the largest companies in the United States. To maintain its position, Cisco made numerous acquisitions (over 70), including the 1999 purchase of Cerent Corporation for $7.2 billion. This still remains their biggest buyout, as of November 2020.
Throughout this period, Cisco primarily served institutions, which offered higher margins and predictable business, as opposed to the volatile mass consumer market. This changed, however, at the turn of the millennium, when Cisco made an acquisition of Linksys Group, which enabled it to enter the consumer router business. Today, Cisco is a dominant player in its industry, with operations all around the world. The company serves its clients through three primary business segments, namely; enterprise, service provider, as well as midsize and small business. Cisco went public on February 16th 1990, listing on the NASDAQ, where it trades under the ticker symbol CSCO. The stock falls in the Technology sector, under the Communication Equipment industry.
Cisco Stock History
Cisco went public with an IPO price of $18. As noted above, the 1990s were a great period for Cisco, and the company implemented stock splits every year except for 1995. That counts for 8 out of the 9 splits the company has implemented in its history. The last stock split for Cisco was a 2-for-1 split performed on February 22nd 2000. During the historical decade, Cisco performed splits whenever its stock price hit or was about to hit triple digits. Cisco practically delivered abnormal profits to investors in the 1990s and was one of the hottest stocks in the dot com bubble later that decade.
From a split-adjusted price of less than $1 in the early 1990s, Cisco sustained a steep climb to its all-time high of just above $80 in March 2000. During this brief period, Cisco attained a market capitalisation of over $580 billion, which ranked it as the world’s largest company, just ahead of Microsoft. But as the tech bubble popped, Cisco became one of the worst-hit casualties. The stock tumbled as fast as it had risen, and by October 2002, it was trading below $10, losing over 85% of its value. The stock has struggled since. It traded sideways until January 2018 when it broke above $40, but it remained contained below $60, and has since returned to trade around the $40 area as of October 2020. Despite its troubles, Cisco has grown into the archetypical dividend stock; a mature, low-growth company, but with healthy dividends. The company is a generous dividend payer, and if its fortunes change, patient investors can expect higher stock valuations in addition to regular income.
How to Trade Cisco Stock
Cisco is an interesting stock for investors. Here are the factors to consider when trading the stock:
- Tariffs and Trade Agreements
Cisco operates globally and continues to generate the bulk of its revenues and profits from its hardware products. This inevitably leaves the company vulnerable to tariffs and trade agreements between various jurisdictions. A case in point would be during the US-China trade wars that resulted in the company being barred from participating in state-backed contracts. The escalation of the tensions also saw the company lose significant business in the lucrative Chinese market.
- New Product Rollout
From its highs during the turn of the millennium, Cisco has struggled to innovate into new products. Still, the company has managed to broaden its products by making acquisitions in various segments, particularly in the software space. The company has had new products, such as Webex and AppDynamics, but investors will particularly be watching how the company will make its presence felt in the cloud data segment, software networking space and the cloud security scene. As an undoubtedly mature company, it is new products that have the potential to ignite the next phase of growth for Cisco.
- Competitor Performance
Cisco’s underperformance since the turn of the millennium is not only down to the bursting of the tech stock bubble. The company has also had to face fierce competition in practically all of their product lines. Its hardware business has faced competition from Chinese firms, such as Huawei and ZTE, that offer much cheaper products with similar functionality. Their decision to concentrate on business clients seems to have come back to bite them, simply because businesses are usually quick to analyse the cost implications of their purchases. Despite diversifying in other areas, Cisco has faced stiff competition from market leaders. Its video meeting app, Webex, is having to deal with the market favourite, Zoom; while its various cloud computing solutions are competing in a highly fragmented market where Cisco has no defined competitive edge yet. As mentioned, new products may prove to be the defining factor for Cisco; but if they lag behind their competitors in this regard, investors may punish their stock harshly.
- Periodic Earnings Reports
Cisco’s fiscal year runs from August to July. The company releases quarterly and annual earnings reports that paint the picture of their business health as well as their future outlook. For Cisco investors, the earnings release is an important date that must be marked on the calendar. This is because good numbers are positive fundamental tailwinds for the Cisco stock price, whereas bad numbers typically trigger negative stock price movements. Some of the most important metrics that Cisco investors watch out for include dividend payouts and available cash assets. The dividend rate obviously determines how much the company is sharing with its shareholders. Investors also watch the cash or cash equivalent assets because this forms a war chest that Cisco can utilise to make acquisitions, something that has, in recent years, been important for the growth and consolidation of the company’s business.
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Cisco Systems Stock FAQ
- Why should I trade Cisco Systems shares?
Cisco is the leading computer networking company in the world. Its routers and switches have become the backbone of many IT and telecommunications operations, giving Cisco strong branding and strong pricing power. Because Cisco networking equipment is the backbone of the internet the company is expected to continue to have a bright future. That said, IT buying tends to go in cycles, driven by new developments in technology, and that makes Cisco stock volatile and at times choppy. Traders willing to watch technology cycles should be happy to trade Cisco shares.
- Is Cisco Systems the best computer networking stock for trading?
Cisco Systems in undeniably the best computer networking company, but is its stock the best in the industry too? We can’t answer that question for certain, but Cisco Systems stock does benefit from a great deal of liquidity. It also sees rapid moves in either direction, often based on broader industry trends. That makes it a great stock for trading during these periods of volatility, and both day traders and scalpers can do well trading Cisco shares. Swing traders should also keep an eye on the stock as the sharp moves higher and lower usually last several days to weeks.
- What’s the best strategy for trading Cisco Systems shares?
Cisco Systems shares tend to large moves over a short period of time followed by consolidation at the new levels. With that in mind we like to use a breakout strategy for trading this stock. Because the sharp moves in the stock can take a few weeks to completely develop it is possible to catch these moves near their beginnings if you are looking for them. The breakout strategy does just that, it looks for sharp moves off bases that have been formed during a consolidation period.