Five Years From Now, You Will Wish You Had Bought This Tech Stock
Sure, the stock market in recent weeks has subjected investors to wild intraday swings and remains vulnerable to a pullback. But dyspeptic analysts and politicians seem to take perverse pleasure in talking down the U.S. economy and markets.
No need to be a Pollyanna, but needless pessimism isn't desirable, either. Doom and gloom may suit the vested interests of certain financial advisers or presidential candidates, but it doesn't suit investors' interests.
The fact is, economic growth is on track, and a market crash isn't on the horizon.
The shares of many high-quality companies are still available at reasonable prices. Cisco Systems (CSCO) - Get Report is a particularly promising technology stock that is set to gain this year.
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This stock will benefit from pent-up demands in the tech sector, as well as recent economic tailwinds that will gather strength this year.
One of the strongest sources of economic optimism is the resilient health of the labor market.
Job growth did slow slightly last month, when the employment report showed that the U.S. economy added 160,000 jobs, fewer than expected. But even at this modest level, the economy is generating about twice the number of new jobs needed to keep up with the expansion of the labor market.
What's more, employment growth in the first quarter reached 667,000 new jobs, faster than three of the four quarters in 2012.
Cisco is scheduled to report fiscal third-quarter earnings next Wednesday. The average analyst consensus estimate is for earnings of 55 cents a share, compared with 54 cents a year earlier.
For the full fiscal year, earnings are projected to hit $2.30 a share, compared with $2.21 a year earlier. For fiscal 2017, earnings are estimated at $2.38 a share.
Cisco boasts a portfolio of innovative and popular cybersecurity products, a dominant presence in commercial information technology, and entrenched ties with the global military establishment. The company also features a fortress-strong balance sheet, diversified and steady revenue streams, and outsize earnings prospects.
As cybercrime becomes an epidemic, the biggest beneficiary will be Cisco, the pioneer and undisputed leader in protecting both civilian and military organizations from hostile digital attack. The company's routers and switches are pervasive in corporations, schools and government agencies worldwide, giving it a ready-made customer base for security products.
And yet Cisco's trailing 12-month price-to-earnings ratio is 13.12, which is reasonable, compared with peers Accenture (24.38), Juniper Networks (14.23) and Microsoft (36.16), as well as the industry (14.56). Cisco's price-to-earnings-growth ratio is 1.41, in line with its future growth potential.
With shares trading at about $26, the median one-year analyst price target is $30, and it is $37 on the the high end, which would represent a gain of nearly 40%.
For the next five years, the analyst consensus is for earnings per share to grow on an annualized basis at 8.24%, compared with 7.54% for the S&P 500.
As several major tech stocks such as IBM and Intel struggle with slowing demand this year, Cisco should not only weather the storm but also handily beat the broader market.
Tune out the naysayers and buy Cisco, before its earnings release.
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John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.
