For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My top conservative idea for 2008 is Cisco Systems (NASDAQ: CSCO)," says Rusty Szurek with Next Inning.
"While the phrase has definitely lost some of its cache, the simple fact remains, 'video changes everything' and for Cisco, that's doubly true. Cisco stands to benefit from the explosive growth we're seeing today in IPTV and internet video.
"The firm will not only benefit from the specialized video equipment it obtained in its acquisition of Scientific Atlanta, but also by the higher traffic demands video places on both the internet as a whole and on business and home networks -- all markets where Cisco is far and away the world market share leader.
"Some might say that Cisco's push into dedicated video products, which range from service provider equipment to home set-top boxes to its TelePresence initiative that is visible in virtually every major corporation in the world today, is like the salty pretzels served free at your local bar.
"The pretzels are, of course, designed to make you thirsty for another beer and whether Cisco's video strategy is to boost demand for its legacy switching, routing and networking equipment, that is exactly what we are seeing.
"In its October quarter, Cisco reported year-over-year revenue growth of nearly 18%; that's impressive for a company that is shipping nearly $10 billion per quarter.
"With forward earnings consensuses of $1.60 and $1.82 for its current and following fiscal year and net tangible assets per fully diluted share of $3.08, many ask us why the price of Cisco has been stuck around $27 after hitting a high in the mid-$30's earlier this year.
"While that's a tough question to answer, it's certainly not due to disappointing earnings; Cisco has beaten the earnings consensus of its covering analysts for six straight quarters now.
"We also can't attribute Cisco's weak stock price to it to guidance; Cisco's guidance for its current quarter implies it will easily top the pre-announcement consensus and likely even beat the 41 cents currently forecast by the most optimistic of the 23 analysts reporting to First Call.
"While Cisco isn't nearly the bargain it was when we advised investors to buy the stock in 2005 when it was trading in the mid-teens, it is a much better balanced business today and trading well below what we believe is a fair value."
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