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Why it's time for Cisco's John Chambers to move on

By David Levine

Having owned Cisco (CSCO) for many years, I am just as frustrated as many shareholders. The former internet darling of the tech bubble has lagged the market as well as its large cap tech peers. Additionally, Cisco seems to be challenged for growth.

So why should any sane investor buy Cisco at this point? The answer is simple: looking around at other large cap stocks within the sector, there is a clear way that Cisco's stock price will rise in the next 12-18 months in my opinion.

For the longest time it has never been about valuation. Cisco pays a dividend over 3%, and has a forward P/E under 12. The problem is that nobody knows where the growth is going to come from. Additionally, shareholders (myself included) have become increasingly frustrated with CEO John Chambers.

Although Chambers has accomplished amazing things at Cisco, many people feel that his departure is long overdue, and that he, like Steve Ballmer, should find a decent basketball team to buy and leave Cisco's operations to someone else.

In this way, the problem becomes the solution. Have you noticed how Intel (INTC) stock reacted when they replaced their CEO? Or how Microsoft (MSFT) stock reacted when they replaced theirs?

In terms of fundamentals, these gigantic companies have not changed much but their stocks have risen dramatically. I personally do not expect much to change at Microsoft, which is why I sold after their recent rise.

Cisco is in a similar situation and in the long run I'm not very excited. However, even the mere mention of Chambers' retirement could send the shares up 10%, toward my ultimate target of $32-34. My best guess, and it is only a guess, is that an activist investor (or Chambers himself) will cause this to happen within the next 12-18 months. That is why I am patiently waiting, collecting my 3% dividend in the meantime.

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