Bruce Berkowitz, of the fund with the tagline “ignore the crowd,” has made an exception and joined a large crowd of gurus in buying stock in Cisco Systems Inc. He acquired 35,818,600 shares (4% of his portfolio) in the first quarter of 2011 at an average price of $19.45 per share. The stock has dropped – as has been its trend for quite some time – 13% since then.
Cisco is the world leader in networking equipment for businesses and enterprises. In the last year, the stock price has fallen over 33% to about $16.60 per share. Many gurus view this as cheap for a company with great financial strength, a few lackluster quarters and some acknowledged challenges. For fiscal year 2010, it had free cash flow of $9.2 billion, its second strongest year in 10 years. In the third quarter of fiscal 2011, cash flows from operations were $3.0 billion, increased from $2.6 billion in the second quarter of fiscal 2011, and flat from the third quarter of fiscal 2010. Cisco also has cash, cash equivalents and investments of $43.4 billion as of the end of the third quarter 2011, up from $39.9 billion at the end of fiscal 2010.
In Cisco’s third-quarter earnings call, CEO John Chambers said that, while the third quarter met expectations, the fourth quarter would “continue to show weaknesses,” and their fourth-quarter guidance would reflect that lag. He pinpointed the areas of the business most under pressure as consumer, traditional switch-top boxes, switching and the public sector.
Berkowitz looks for companies at a discount to their intrinsic value that have a catalyst which makes it likely that the gap between market price and value will close in a reasonable amount of time. Cisco has said that it has taken steps to increase growth, such as implementing its largest ever switching portfolio refashion and focusing on cloud systems in the public sector, as well as various other internal corporate restructuring and reorganization measures.
Other companies, however, are ramping up their competition with Cisco and wanting to break into its 80% market share. HP (HPQ, Financial), for instance, had a 2,000% increase in sales growth in its networking business last year, picking up major clients such as Coca-Cola (KO, Financial), Walmart (WMT, Financial), Fidelity and Goldman Sachs (GS, Financial). It has also introduced a switch comparable to Cisco switches but 35-40% cheaper. HP estimates that its switch revenue share grew 2.3% in 2009 and 2010.
Bruce Berkowitz is noted recently for standing by his largest holding AIG (AIG, Financial), the beleaguered insurance company that is down 46% year to date. He has another controversial investment in St. Joe’s (JOE, Financial), a real estate firm that has lost money for the last three years, whose stock has risen 11% year to date.
Cisco is the world leader in networking equipment for businesses and enterprises. In the last year, the stock price has fallen over 33% to about $16.60 per share. Many gurus view this as cheap for a company with great financial strength, a few lackluster quarters and some acknowledged challenges. For fiscal year 2010, it had free cash flow of $9.2 billion, its second strongest year in 10 years. In the third quarter of fiscal 2011, cash flows from operations were $3.0 billion, increased from $2.6 billion in the second quarter of fiscal 2011, and flat from the third quarter of fiscal 2010. Cisco also has cash, cash equivalents and investments of $43.4 billion as of the end of the third quarter 2011, up from $39.9 billion at the end of fiscal 2010.
In Cisco’s third-quarter earnings call, CEO John Chambers said that, while the third quarter met expectations, the fourth quarter would “continue to show weaknesses,” and their fourth-quarter guidance would reflect that lag. He pinpointed the areas of the business most under pressure as consumer, traditional switch-top boxes, switching and the public sector.
Berkowitz looks for companies at a discount to their intrinsic value that have a catalyst which makes it likely that the gap between market price and value will close in a reasonable amount of time. Cisco has said that it has taken steps to increase growth, such as implementing its largest ever switching portfolio refashion and focusing on cloud systems in the public sector, as well as various other internal corporate restructuring and reorganization measures.
Other companies, however, are ramping up their competition with Cisco and wanting to break into its 80% market share. HP (HPQ, Financial), for instance, had a 2,000% increase in sales growth in its networking business last year, picking up major clients such as Coca-Cola (KO, Financial), Walmart (WMT, Financial), Fidelity and Goldman Sachs (GS, Financial). It has also introduced a switch comparable to Cisco switches but 35-40% cheaper. HP estimates that its switch revenue share grew 2.3% in 2009 and 2010.
Bruce Berkowitz is noted recently for standing by his largest holding AIG (AIG, Financial), the beleaguered insurance company that is down 46% year to date. He has another controversial investment in St. Joe’s (JOE, Financial), a real estate firm that has lost money for the last three years, whose stock has risen 11% year to date.
