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Currently a network hardware specialist Cisco Systems (NASDAQ:CSCO) often receive a “bad reputation.” People sometimes complain that CSCO stock has not yet returned to its 2000 peak price. But this is more of an opportunity than a problem, and smart investors should jump at the chance to invest in Cisco.
As you'll see, Cisco offers a rare combination of value and yield in the big tech space of the 2020s. Cisco just completed the acquisition of a data security and artificial intelligence software company. This acquisition went surprisingly smoothly and should add significant value to Cisco going forward.
CSCO Stock: This Value is Hard to Beat
For those looking for value, it's actually a good thing that Cisco isn't the market darling. Although the company was a popular company in 2000, it was the wrong time to buy CSCO stock.
If you want to buy an unpopular stock, consider this. Cisco's trailing-twelve-month price-to-earnings ratio of 15.15x, measured under his GAAP, is quite reasonable. Incidentally, the sector's median P/E ratio is 29.71x, almost double.
In other words, the risk-reward balance for CSCO stock is much more favorable in 2024 than it was in 2000. As such, CSCO stock is cheap at around $50.
Passive income investors should appreciate Cisco's quarterly dividend payments. Currently, Cisco offers his annual forward dividend yield of 3.17%. This compares very favorably to the technology sector's average annual dividend yield of 1.025%.
Cisco's 'transformational' acquisition
There are also big events that will significantly increase Cisco's value. Specifically, Cisco completed its acquisition of Splunk, which specializes in his AI-enabled data security software.
as bloomberg The deal reportedly took just six months and was completed “without any antitrust complications.” In a similar manner, Barons Cisco said its acquisition of Splunk was completed “well ahead of schedule.”
The Splunk acquisition is expected to be accretive to Cisco's non-GAAP EPS in fiscal 2026. But there's more to this story than just the final financial picture. Stephen Elliot, vice president of IDC's group for I&O, cloud operations, and DevOps, explained how the merger will be “transformative” for Cisco.
“With the closing of this transaction, Cisco has created a unique set of solutions for networking, security, and operations managers in the market,” he said. “When you add this to your channel and AI investments, customers need to consider the higher level of business value they can unlock going forward.”
If Splunk adds AI-focused features to Cisco's products, it's a win-win for Cisco and its shareholders. That won't necessarily make the company a market favorite, but sooner or later investors should start appreciating a new and improved Cisco.
CSCO stock: This could be the best bet in tech
If you only care about the momentum of stock prices, it may be better to stick to the “Magnificent Seven” stocks. Those looking for value and yield should keep a close eye on Cisco stock.
The completion of the Splunk acquisition will enable Cisco to offer a broader range of AI-powered products. Still, CSCO stock remains cheap. This is a glitch in the matrix and probably won't last very long. So smart investors should add Cisco stock to their portfolios before the opportunity passes.
On the date of publication, David Mordell did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer and are influenced by InvestorPlace.com. Publishing guidelines.
