Cisco Systems, Inc. (CSCO), Hewlett-Packard Company (HPQ): After Impressive Earnings Report, Is It Still Cheap?

Recent stock-price performance

After trading in a narrow range between $19 and $22 per share for most of 2013, Cisco Systems, Inc. (NASDAQ:CSCO) broke out in the wake of its earnings report. These days, Cisco trades above $23 per share and shows few signs of giving up the bulk of its post-report gains. Despite this strong performance, the company still looks cheap: At $23.50 per share, its price-to-book ratio remains an industry-lagging 2.2. This suggests that some investors remain skeptical of Cisco’s ability to sustain its momentum.

Industry outlook and long-term performance

Although it is important to remain level-headed in response to encouraging earnings news, some investors believe that the latest earnings figures from Cisco and Hewlett-Packard point to a real turnaround in the hardware and software markets. Although both companies are saddled with some legacy operations that act as drags on their balance sheets, these firms are well-positioned to operate in a cloud-centric world. Since Hewlett-Packard Company (NYSE:HPQ) will probably need to downsize its PC and hardware operations even further, its renaissance remains more of a medium-term goal. By contrast, Cisco looks to be in an exceedingly strong strategic position.

Is it worth a bite?

In light of the fact that Cisco Systems, Inc. (NASDAQ:CSCO) remains cheap, the company may offer an exciting opportunity for investors who wish to gain exposure to a stable technology sector and leverage a yield of better than 2.5% at the same time. Even after its encouraging earnings report, Cisco is unlikely to post explosive growth numbers. As such, the company offers few opportunities for those who seek out fast-growing technology firms for quick trading profits. Given its size and operational activities, Cisco simply is not built to deliver such performance.

However, this does not mean that the company has no place in a medium-term portfolio. Cisco is well-positioned to capitalize on the accelerating transition to cloud-based storage and wireless connectivity, and the company is likely to continue to post better-than-expected earnings numbers. Investors who currently lack exposure to this industry would do well to look at Cisco at these levels.

The article After Impressive Earnings Report, Is It Still Cheap? originally appeared on Fool.com and is written by Mike Thiessen.

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