5 Reasons Cisco is My Top Tech Pick for 2013

4. Tapping emerging markets

Chambers now spends a considerable amount of time on the road in Latin America and Asia. He’s directed his sales force to treat these markets as a top priority. The timing is good as many of these markets are now increasingly home to large domestically-grown companies, and not simply the foreign divisions of firms like Wal-Mart Stores, Inc. (NYSE:WMT) and The Coca-Cola Company (NYSE:KO). Emerging markets currently represent about $9 billion in annual sales (20% of the entire sales base), though Cisco aims to boost that figure by 10% annually in the next three to five years. To get there, Cisco is developing lower-cost solutions for these price-sensitive markets.

5. Free Cash Flow = Buybacks

Any discussion of Cisco has to touch on the prodigious free cash flow and the long run of share buybacks they have fueled. The share count has already fallen from 6.8 billion in fiscal 2004 to 5.4 billion at the end of 2011, and considering management’s plan to spend 60% of future cash flow on buybacks and dividends, this trend should continue.

Risks to Consider: To augment growth, Cisco has signaled plans to pursue a fairly hefty acquisition in coming quarters, and such deals can sometimes spook investors.

Action to Take –> Even with all of these growth-inducing steps, Cisco is only likely to boost sales in the mid-to-upper single digits each year, while per-share profit growth is unlikely to exceed 10%. But by delivering these kinds of gains in a steady linear fashion, investors are likely to reward this stock with an ever-higher multiple. When you include Cisco’s massive $33 billion net cash pile, this becomes a low-multiple stock with a fairly low level of embedded expectations. This means 2013 should represent a fresh perspective for this one-time highflyer as growth kicks in.

This article was originally written by David Sterman, and posted on StreetAuthority.