5 Stocks Donald Yacktman is Selling in 2022

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

Value of Yacktman Asset Management‘s 13F Position: $84.36 million

Number of Hedge Fund Shareholders (as of March 31): 66

Yacktman also unloaded 27% of his fund’s position in Cisco Systems, Inc. (NASDAQ:CSCO) during Q1, cutting its share ownership of the networking giant down to 1.51 million shares. Hedge fund ownership of Cisco jumped by 14% in Q1, the biggest quarterly spike in three years.

Cisco Systems, Inc. (NASDAQ:CSCO) shares have crumbled by 14% since May 17 following surprisingly weak fiscal Q3 results and even weaker fiscal Q4 guidance. While Cisco’s $0.87 in adjusted EPS beat estimates, its $12.8 billion in revenue was well off estimates of $13.34 billion. And while analysts were guiding for 6% revenue growth for the company during its fiscal Q4, Cisco shocked investors by announcing revenue could instead decline by as much as 5.5% during the quarter.

Hayden Capital pondered why Cisco Systems, Inc. (NASDAQ:CSCO)’s stock was so anemic for so long in the fund’s first quarter 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 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, 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.”