Billionaire David Siegel’s Top 5 Stock Picks

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

David Siegel turned heavily bullish on Cisco in the third quarter, as his hedge fund increased its stake in the company by 117%.  Two Sigma now owns over 11 million Cisco shares, having a total worth of $433.66 million. Overall, hedge fund sentiment remained flat for Cisco in the third quarter, as 59 funds moved into the fourth quarter with Cisco on their portfolios.

Cisco is currently in the news after it announced plans to buy Acacia (NASDAQ:ACIA) for $115 per share, The companies expect to complete the deal by the end of the first calendar quarter of 2021.

Heartland Opportunistic Value Fund said the following about Cisco in its Q3 Investor Letter:

“A handful of Information Technology (IT) names have been grabbing most of the investment headlines lately, however, as a whole, the sector has been a mixed bag from a performance standpoint. The Russel 3000® Value Index highlights the dynamic where the group ended the period mostly flat. Our holdings in the space outperformed marginally but also contained a key detractor, Cisco Systems, Inc. (CSCO).

Cisco, the world’s leading computer networking provider, was down for the period after revenues from its Products and Applications business lines weakened as IT departments postponed network spending in response to COVID-19. Sales from its security line were up roughly 14% but strength in the segment wasn’t large enough to offset weakness elsewhere. Impressively, they held operating margin on a 9% revenue decline.

Wall Street’s reaction to the weak results were mixed. Some credited the company for executing well in the face of an unprecedented macro pressure on its clients, while others cited results as an indicator that Cisco is struggling in its transformation from a predominantly hardware-oriented business to one that generates recurring-revenue through software and services.

The challenges faced by Cisco strike us as a temporary setback to what has been ongoing progress in its transition to a model that generates recurring revenue and is less tied to the IT spending cycle.

We believe the positive strides made in previous quarters will resume. With the recent setback, shares are trading at an attractive 12x earnings, while generating a nearly 4% dividend yield and a free cash flow/enterprise yield of nearly 10%.”