If 2013 has been a great year for stocks in general, it's been a phenomenal year for
Cisco Systems (
CSCO). Shares of the $130 billion IP networking giant have rallied 24% year-to-date, beating the broad market's impressive ascent by 10%.
Cisco is the world's biggest manufacturer of data networking equipment and software, a niche that's benefitted in a big way from the rising tide of data demands in consumer products. Now Cisco looks well positioned for the second half of 2013.
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Cisco has the biggest installed base in the business, a size advantage that comes with some big tailwinds. Because Cisco's routers, hubs and switches proliferate firms' datacenters across the world, it's significantly cheaper for those firms to grow their infrastructure by plugging in additional Cisco components. That adds considerable stickiness for Cisco in spite of rising competition from rivals. While growing data consumption should be a boon to the whole IP infrastructure industry in the years ahead, Cisco's positioning all but guarantees the firm a bigger benefit.
A refocused business approach in the last few years has left investors with a more enterprise-centric firm -- Cisco shuttered its flailing consumer products business (with the exception of networking gear) in the wake of the Great Recession. While hefty cash generation may tempt management to make questionable investments, that's a good problem to have.
As I write, around a quarter of Cisco's market capitalization is paid for in cash, which gives the firm a cash-adjusted P/E ratio of just 10. In short, Cisco looks cheap in spite of it's rally this year.