5 Famous Value Stocks that Underperformed in 2022

4. Cisco Systems, Inc. (NASDAQ:CSCO)

Number of Hedge Fund Holders: 66

PE Ratio: 16.35

Percentage Decline in Share Price YTD as of August 12: 26.20%

Cisco Systems, Inc. (NASDAQ:CSCO) makes and sells networking and other products. In late June, the company announced that it planned to fully wind up operations in Russia and Belarus amid the Russian invasion of Ukraine. In March, the company had suspended sales and services in Russia. The move comes as the US sanctions firms working in Russia that provide Moscow with access to critical technology and equipment that can be used as part of cyber attacks in the US or on US allies. 

On July 14, JPMorgan analyst Samik Chatterjee downgraded Cisco Systems, Inc. (NASDAQ:CSCO) stock to Neutral from Overweight with a price target of $51, noting that there were increasing signs of the challenging macro feed into demand trends. 

At the end of the first quarter of 2022, 66 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Cisco Systems, Inc. (NASDAQ:CSCO), compared to 57 in the previous quarter worth $3.4 billion.

Here is what Hayden Capital has to say about Cisco Systems, Inc. (NASDAQ:CSCO) in its Q1 2022 investor letter:

“During the height of the tech bubble, Cisco’s stock peaked at ~$80 in March 2000, reaching up to a $500BN+ valuation (~26x Price / Sales, with ~17% operating margins or 156x operating profits). However, by the time it bottomed in September 2002, shares were trading at just ~$8.60 per share (~3.2x Price / Sales, ~21x operating profits). A little over a year later, the share price had doubled to ~$20, but then continued to trade around those levels in a range for the next 10 years.

So why were Amazon and Mercado Libre able to recover so quickly from their large draw-downs, while Cisco’s stock price remained anemic?

It seems the answer is in their differing growth profiles in the years afterwards. For example, Cisco Systems, Inc. (NASDAQ:CSCO) revenues were $18.9BN in 2000, $22.3BN in 2001, $18.9BN in 2002, $18.9BN in 2003, and $22.0BN in 2004. By contrast, Amazon was able to grow its business by ~120% in the 3 years after the stock bottomed, and Mercado Libre grew by ~118% in the following 3 years. For Cisco Systems, Inc. (NASDAQ:CSCO), it wasn’t until 2012 (11 years later) that revenues managed to double (to $46BN) from its original peak. Compare this to Amazon, who during those same 11 years, managed to grow its business 22x.”