5 Blue-Chip Stocks Ready for Buyers

Cisco Systems

Fiscal (July) 2004 Sales: $22 billion

Fiscal 2012 Sales: $46 billion

Fiscal (July) 2004 EPS: 70 cents

Fiscal 2012 EPS: $1.46

>>5 Stocks Pointing to the Right Place at the Right Time

It's not clear that telecom equipment giant Cisco (CSCO) ever deserved to be valued at $70 a share, as was the case in early 2000, but the current $19 target seems equally unjustifiable when you consider how much larger Cisco's customer base is these days. What was once a U.S.-focused firm now has a strong presence is dozens of countries.

Yet it's the company's balance sheet that should tell you just how cheap this stock is. Cisco sports a market value of $102 billion, but it has $32 billion in net cash. That yields an enterprise value of around $70 million. When you consider that Cisco has generated at least $8 billion in free cash flow in each of the past six years, you begin to realize that this stock is treated as if it's a utility like AT&T (T).

Yet Cisco is a leading-edge technology play, with 60% gross margins, 20% operating margins and return on equity that typically exceeds 15%. Cisco's stock may be broken, but the company is far healthier than you might suspect.

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