Analyst Upgrade Shows Value & GARP At Cisco Systems (CSCO)

It’s always expected that you see analyst downgrades any time you see disappointing news out of a company.  This morning we did see at least two downgrades on Cisco Systems (NASDAQ: CSCO) after its earnings conference call where John Chambers took down the growth forecasts.

But sometimes analysts use weakness in the stock, especially after weakness had been there before, to look for opportunity.  Boutique research firm Pacific Crest Securities raised the rating on Cisco Systems to an Outperform rating from a "Sector Perform" rating.  The analyst call was on valuation and based upon upon the company’s solid position and on margins.  While Pacific Crest didn’t note that shares have reached an inflection buy level or a definite bottom, it did note that the stock is not likely to fall much further.

We aren’t ready to call a total or finite bottom as of yet on our own, although long-term investors have an incredible opportunity here to start picking up shares when they are weaker.  Shares had sold off significantly even before the earnings yesterday.  If you have followed anything related to the economy lately, the ever-cautious John Chambers could not have really been expected to not take numbers down.  This is a recession, and in fact now that the NASDAQ pulled back by 20% it is in bear market territory.  There is no reason to be greedy, and investors that make money in trading ranges during a bear market buy on extreme weakness rather than after shares have recovered.

The current environment has no immediate quick fix and we expect the headlines to continue for some time.  But there is beginning to look like a base is trying to form in this stock.  Longer-term investors can start marking in some attractive entry points and buy on days when the market is very weak.  We noted in our earnings preview how this was getting down to levels where it was probably going to start showing up all major screens run by Value managers and growth managers alike.

Cisco’s stock was down 7% earlier this morning.  Shares are only down about 2% now at $22.70, and even though it saw $21.77 earlier that would actually be above its old $22.30 to $34.24 trading range over the last 52-weeks.

Jon C. Ogg
February 7, 2008