Chasing Value: Cisco Systems -- rich, good looking & smart

Cisco is still the leader in internet technology and gadgets for home and office. Numerous large enterprises have been expanding their data centers wanting to stake their claim to a portion of the cloud that is forming to distribute and store information. The explosion of web pages, blogs, and social networks, has not slowed down.

No less than Microsoft Inc. (NASDAQ: MSFT), Google Inc. (NASDAQ: GOOG) and Amazon.com (NASDAQ: AMZN) have been expanding as fast as they can even in our poor business environment. All of these companies have strong cash flow and cash on hand to grow.

It's been a long time since I had any interest in Cisco, having sold at the peak in 2000. I wish I had sold a lot of other things as well. In any event, I have become interested again. The following ten-year chart presents CSCO hovering near its ten-year low.

When the economy turns around I believe Cisco Systems will be a major benefactor. In the meantime, they have the cash to acquire just about any company they desire, or, as I think they should consider, start paying a dividend. At a minimum, they should be buying back shares at what I think are wholesale prices.

The current P/E ratio is hovering around 13 (TTM) with a forward guestimate at 15. The company has a return on equity (ROE) of 23%. The huge cash position distorts the earnings figures and the various metrics. The net profit margins exceed 20% but it would be much higher if the cash was earning anywhere near as much as the company, but instead it is earning very little bringing down the average.

If you were to remove the cash and the commensurate shares from the picture the P/E would drop to 10. When was the last time this stock had a P/E of 10? I think investors should be looking very closely at Cisco before a recovery is in full bloom.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of CSCO.