Cisco Rated “Sell” at Citi and Only Down 1%? Saddle Up That Dead Horse and Wait a While!

A day after I write about whether Cisco’s stock has bottomed out, Citibank initiates with a Sell.  The analyst, Ehud Gelblum, has been around for a while and has a following.  You would have expected a pretty major impact.

There wasn’t one.

You know you are beating a dead horse when it just sort’ve quivers when you kick it.  This horse is not pining for the fjords.

This horse is no more! He has ceased to be! ‘E’s expired and gone to meet ‘is maker! ‘E’s a stiff! Bereft of life, ‘e rests in peace! If you hadn’t nailed ‘im to the perch ‘e’d be pushing up the daisies! ‘Is metabolic processes are now ‘istory! ‘E’s off the twig! ‘E’s kicked the bucket, ‘e’s shuffled off ‘is mortal coil, run down the curtain and joined the bleedin’ choir invisibile!!  (with thanks to Monty Python).

I am talking about Cisco the stock, not Cisco the company.  The company has its struggles, but it is a long way from dead.  Today’s non-event suggests the stock has found a bottom.  A lot of that support is probably its dividend yield.  Which leaves us with a pretty clear picture of who is left holding it.

  • Index funds
  • Dividend fund investors looking for some sector diversification.
  • Patient value investors waiting for a turnaround.

None of the above are likely sellers.  Everyone else seems to have sold.  The dividend looks more than safe (@14% free cash flow yield).   So it becomes a (potentially long) waiting game for the “story” to turn.

I don’t think Cisco ever gets back to 20x earnings, but if it gets the market multiple of @16x, we have a $32 stock plus its excess cash.  Lets say $35?  That might be asking too much, even a 10x-12x multiple with excess cash gets us close to $30.  That’s close to 50% upside, with 3% income in the meantime.

Actually, $35 might not be asking too much.  It is amazing how old, dead horses rise to gambol in a new light after a spell in the shadows.  I won’t be hanging around for $35.  I have generally been a too-early seller.   I will probably remain one.  But I will be hanging around for something over $25.  25%+ upside with decent support seems like a better place to be than cash.

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