SAN JOSE, Calif. (TheStreet) -- The U.S. stock market is ricocheting, jumping 4.4% yesterday after declining 6.4% last week. With a bailout of southern Europe's sovereign debt, a fragile American economy and an overheating China, expect more of the same.
The situation calls for dominant U.S. companies with growth potential and stable finances. In other words,
Business spending is a smaller part of the American economy than consumer spending is, but it's highly variable, making it more influential. Because of that, stocks such as Cisco are a bellwether for their industry and the economy as a whole. What's good for Cisco is good for America. We'll see how good that is tomorrow, when the world's biggest maker of computer-networking equipment reports earnings for the three months through May 1, giving investors a glimpse of the beginning of most companies' second-quarter results.
Analysts expect Cisco's quarterly earnings and revenue will climb about 25%. What's more, revenue will rise 9.8% this year and accelerate to 13.2% in 2011, they say. The stock has increased 31% over the past year, beating the 25% increase of the
S&P 500 Index
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Cisco's Stock Can Still Move Higher
Like other companies that have recently beaten analysts' expectations, including
, Cisco is being pulled along by faster-growing foreign countries such as China.
Cisco has rock-solid financials, which should allow it to weather a turbulent period for stock markets. The company has about $4.7 billion in cash sitting on its balance sheet and a current ratio of nearly 3.5, suggesting it can easily meet financing needs. Cisco also has about $12 billion of its $18 billion in debt set to mature until 2014 or later.
Cisco looks attractive based on its current value. Its price-to-earnings ratio is 16.4, less than the industry's average of 19.9.
model gives Cisco a "buy" recommendation with a grade of B. Buying any stock now will likely result in unpleasant volatility, but Cisco is strong enough to come through on the other side healthy.
With a beta value of about 1, Cisco won't ramp up portfolio risk and should run nicely as businesses bring their money back to the table. Pick up Cisco as the stock market falters and consider it a bargain.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.