Is Cisco Doomed?
Earlier this month, the stock fell as far as $13.30 before pulling out of its nosedive following a powerful Aug. 11 earnings report. Fast forward just a few weeks, though, and oM argues that the shares are looking vulnerable once again: "January 2012 10 puts led the option action, with 24,000 changing hands against open ... interest of just 7,265 contracts. The big block of 23,400 was bought for $0.24, above the ask price at the time, which indicates that they were bought."
Puts, as you know, are a form of option that traders use to short a stock while limiting their risk from an "upside surprise." And the way oM sees it, this rapid rise in short interest against Cisco bodes ill for the company's next earnings report. To which I can only reply:
What's the rush, optionMonster?
I mean seriously, folks, Cisco just got finished reporting earnings. Strong earnings. While Juniper (NAS: JNPR) , Riverbed (NAS: RVBD) , and Brocade (NAS: BRCD) were floundering, Cisco "made significant progress" on repairing its business, and reaped the rewards. We've got nearly three full months left before the company has to belly up to the bar and report earnings again. Do we have to start biting our fingernails already?
Actually, no. Options trading may be fine for short-term traders, and in the short term, Cisco skeptics might even be proven right (although the stock's climb since Friday suggests otherwise.) Longer-term, though, I still see Cisco as a bargain. The stock only costs 13.3 times earnings, after all, and less than 10 times free cash flow. Analysts have Cisco pegged for nearly 10% annual growth over the next five years, and the company even pays a tidy 1.6% dividend. To top it all off, nearly one-third of Cisco's market cap is currently backed up by cold, hard cash.
My advice: Stop worrying. Stop trading. Cisco is doing just fine, and if you own it, you will, too.
Will Cisco disprove the skeptics?Add it to your Fool Watchlistand find out.
At the time this article was published Fool contributorRich Smithdoes not own or short any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 429 out of more than 180,000 members. The Motley Fool has adisclosure policy.The Fool owns shares of and has created a bull call spread position on Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Cisco Systems and Riverbed Technology, as well as writing puts in Riverbed Technology. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.
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