The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Cisco Stock Forecast

Summary:

Compared to its peers, Cisco is relatively undervalued. Bargain hunters looking for a cheap play to Internet of Things and cyber security should consider Cisco.

Cisco’s low valuation has resulted in it giving a dividend yield of 3.7%. Income-focused investors should now add Cisco to their dividend portfolio.

Yes, Cisco is a slow-growth tech company. However, this mega-cap networking firm is likely to shrug off any downturn or recession.

Cisco has $62 billion in overseas cash. If President Trump’s proposed 10% overseas tax is approved, Cisco will have more than $55 billion to buy more companies.

CSCO has optimistic algorithmic trend forecasts from I Know First. The stock is unlikely to dip for a prolonged period this year.

Bargain hunters looking to find cheap plays in the Technology sector should consider adding Cisco (CSCO). The world’s largest vendor of network switches is relatively undervalued compared to its peers in the Technology sector and Communications & Networking industry. Cisco’s P/E ratio of less than 16 is way lower than the average Technology sector’s 24.24.

Using FundamentalSpeculation’s relative valuation algorithm, I discovered that Cisco deserves a fair value price of $55.99. This valuation price is derived from first calculating the Cohort Fair Value of based on valuation ratios of companies that have similar business fundamentals to Cisco.

(Source: fundamentalSpeculation.io)

After getting the Cohort Fair Value of $50.28, the Relative Valuation Model of FundamentalSpeculation it will then calculate the Fair Value by incorporating adjustments to the Cohort Fair Value based on Cisco’s sector. Like I Know First, FundamentalSpeculation uses unassisted machine learning computers not to predict stock market trends, but to make its relative valuation of stocks.

The Fair Value of $55.99 represents a premium of 79.68% over CSCO’s last closing price of $31.16.

Alpha Omega Mathematica Agrees

Another machine learning using service, Alpha Omega Mathematica or AOM, supports the relative undervaluation of CSCO that FundamentalSpeculation presented. AOM made a buy rating for CSCO due to its golden value proposition. It is saying CSCO is a bargain compared to its sector and industry peers.

The chart below is self-explanatory. CSCO has notably valuation ratios than its peers. Value-minded investors will no doubt agree with my assessment that Cisco presents a great investing opportunity right now.

(Source: getaom.com)

Cisco Is Also A Decent Dividend Payer

The market’s current low valuation for Cisco has resulted to CSCO touting a dividend yield of 3.71%. Cisco only started to pay dividends in 2011. However, it is emerging as an attractive investment for income-minded investors. CSCO now touts a higher dividend yield than Microsoft’s (MSFT) 2.23%, and Intel’s (INTC) 3.22%.

For the past six years, Cisco has also consistently delivered increased dividend payments.

(Source: thestreetinsider.com)

Further, the dividend payments from Cisco are not a drag on the company’s cash flow. Cisco’s payout ratio is only 54%. Cisco has managed to achieve 10 years of positive free cash flow.

(Source: Vuru.co)

Cisco generates so much cash that it can afford to consistently do stock buybacks for the past decade. Cisco is in a boring business of selling switches, routers, and other networking hardware. This line of business may be slow-growing but it keeps Cisco awash in cash.

(Source: vuru.co)

Conclusion

Cisco is the undisputed global leader in network switches, routers, and other networking hardware. It makes tons of money from international clients that Cisco has $62 billion in cash stashed abroad. It can afford to simultaneously buy Ericsson (ERIC) and Nokia (NOK).

Buying Ericsson or Nokia will increase Cisco’s total addressable market. Ericsson and Nokia are leaders in fixed and wireless broadband infrastructure solutions. Ericsson and/or Nokia could also help further improve Cisco’s Internet of Things and cyber-security strategies.

My point is that Cisco’s future will be bright when it can consolidate its leadership in networking hardware and cyber-security cloud/software solutions. Further, Cisco is emerging as a leader in cloud software-as-a-service. Gartner has identified Cisco as a leader in Unified Communications, Web Conferencing, Contact Center Infrastructure, and Group Video Systems.

Cisco’s strong pricing power (average gross margin is 61%) and high net profit margins over the last ten years means it has a strong economic moat. You are buying a strongly-secured investment when you add CSCO to your portfolio.

(Source: Vuru.co)

CSCO has positive near-term and long-term algorithmic forecasts from I Know First. I therefore reiterate my buy rating for Cisco.

Analysis of important monthly technical indicators and moving averages trend lines also favor going long on Cisco right now.

(Source: Investing.com)

Past I Know First Forecast Success with Cisco

I Know First has made accurate predictions on CSCO in the past, such as its bullish article published on December 13th, 2015. In the article, it reviews Cisco’s announcement of a new software release that enhances ACI with micro-segmentation for both physical and multivendor virtualized applications. During the one-year period starting on December 13th, 2015, CSCO shares increased by 16.93% in line with the I Know First algorithm’s forecast. See chart below.

(Source: Google Finance: CSCO)

This bullish forecast for CSCO was sent to I Know First subscribers on December 13th, 2015. To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.