Santa Seymour Rides Again

Jim gives his buy-and-sort-of-hold pick for 2000.
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A year ago today, a big, bearded old guy in a funny red and white suit dropped by to chat for a few minutes and asked that I pass along to you his special gift for investors for Christmas 1998. Out of that visit grew my "Psst! A Gift From Santa"

column, which recommended

Qwest

(QWST)

, which I am still long, as a stock you could buy, sock away and return to in a few years to find considerable gains.

What? A buy-and-hold stock on

TSC

?! Do these rare creatures really still exist? Would we know one if we saw one? Didn't

Gary B. Smith

just say the

other day that he doesn't believe in buy-and-hold stocks?

Tech Savvy: Join the discussion on

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message boards.

There are darned few, of course. We have become, as it said on the cover of

Fortune

last month, a "trader nation" in which midterm means by this afternoon, and long term might, just might, be as far off as the end of the week.

But I get a constant stream of email from

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readers asking for recommendations for buy-and-hold stocks. This is always awkward, in part because at

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, we don't see ourselves as your stock-pickers, but as a hardy crew trying to get to you the information you need to make your own picks. Moreover, despite what many today feel about our portfolios -- that buy-and-hold issues are, indeed, a rare and threatened species, too exotic for our own sheets -- the suspicion lingers that buy-and-holds worth discovering

are

out there. And worth the effort to find.

So, I called up the big guy again to see what I could find. He made it clear he was way too busy this year to drop by for another chat -- said it was all that newly created wealth, a big chunk of which was being spent, I was glad to hear, on presents for needy kids -- but said he did, indeed, have another one-and-only recommendation.

This one isn't nearly as dramatic as Qwest -- a stock many

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readers had never heard of, in a business many hadn't considered -- was last year. Nope, this year the pick is a lot more obvious --

Cisco

(CSCO) - Get Report

.

OK, OK -- I hear the grumbling. Cut it out. The whole notion of a one-stock portfolio or a buy-and-hold pick -- the two are very similar -- is a stock which delivers great performance, combined with the closest thing you can get to security in this insecure world. So, why would you prefer something obscure and little known? Or something a lot riskier?

For better returns? Well, maybe. But how about the spectacular flameout side of that equation?

Some today are saying Cisco is slowing down, that its best days are behind it. Given the stock's roaring performance over the last few years, that's certainly possible: It's set a tough pace to sustain. But that doesn't mean Cisco won't deliver market-beating returns over the next few years. And anyway, I don't buy the "best is past" argument for Cisco for a minute.

In fact, I look for Cisco to stay on nearly everyone's top-10 lists over the next few years, precisely because of its combination of big returns and safety.

Today, Cisco is a pre-eminent example of understanding the Net, of understanding customers' needs, of understanding how to keep growing.

  • It's a company that has pulled off more than 40 acquisitions over the past six years, without the kind of embarrassing and costly culture-clash problems we've seen at so many of its competitors. Think of acquisitions as "outsourced R&D," and you'll see why they're so important today in growing a high-tech powerhouse.
  • It's a company that learned early how to cut sales costs and stay close to its customers by selling over the Web. Dell (DELL) - Get Report gets the press' plaudits for big Web sales, but Cisco sells as least as much gear on the Web every day as Dell -- most recently, for both companies, about $30 million a day. (Indeed, you can make a good argument that Cisco is the most successful B2B around.)
  • It's a company that sees, appreciates and is willing to pay for value, such as in its attention-getting $6.7 billion acquisition of Cerent. This is a company that opens new doors for Cisco and helps guarantee Cisco's league-leading network performance into the future. Sure, Cerent cost a bundle, but it was worth it.
  • It's a company that understands that it can't keep growing by relying on its existing technologies and products. Good example: this week's $2.1 billion purchase of Pirelli's (PIREY) fiber-optic hardware line, which puts Cisco hip-deep in the essential dense wave-division multiplexing, or DWDM, market. (DWDM vastly increases the carrying capacity of an existing strand of fiber-optic cable by splitting incoming signals into many "colors" of light, effectively opening many data paths along that single strand. The Pirelli DWDM products create up to 128 channels on a strand, where previously there was only one.) This keeps Cisco ahead of competitors like Lucent (LU) , which I am long, and Nortel (NT) in one of the explosive businesses of the next decade.

Do I think Cisco is going to outperform every other company over the next few years? Of course not. That's not what you're looking for in a one-stock portfolio; you're trading off a little on the performance side to gain a lot on the safety side.

But make no mistake about it -- I don't see Cisco as a "safe" pick, but rather as a roaring good investment. I have no intention of apologizing for it, even though I'm sure we'll see some hot-com's outperform it next year.

Even if Cisco doesn't deliver over the next two or three years the kind of explosive growth it has over the past five years -- it has gone from a split-adjusted three bucks and change to over a hundred during that time -- it's still likely to deliver superior performance compared to your other investment options.

A final thought on these presents from Santa:

If you bought Qwest last Dec. 23 when I recommended it, you've had a very nice gain -- including another 8%-plus Tuesday, when the company announced that, as of the first of the year, it'll be trading on the

NYSE

as "Q." That easily tops the return from the usual indices like the

Nasdaq Composite

.

But not as good a year as you might have had. Because Qwest, which this time last year seemed set on a high-growth path as a reseller of fiber-optic capacity, zagged midyear, entering an unfortunate contest with

Global Crossing

(GBLX)

for

U S West

(USW)

. Qwest won and today faces a future, many believe, of slower growth. That should be a sobering reminder to Qwest-heads and others convinced a stock will always stay on the same track and will always perform at the top of the market:

Things change

.

Even safe-looking buy-and-holds need some watching.

Thanks again for the tip, Santa. See you next year.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Qwest and Lucent and not short any of the securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.