On the back of six consecutive weeks of gains, stocks fell at the open today, with the S&P 500 (INDEXSP:.INX) and the narrower, price-weighted Dow Jones Industrial Average (INDEXSP:.DJI) down 0.1% and 0.23%, respectively, as of 10:05 a.m. EST.
The week ahead
With fourth-quarter earnings data now available for more than two-thirds of the S&P 500, the earnings season is slowing down. However, a number of Dow components and other bellwether companies are reporting this week. There are no major earnings or economic announcements today, but this is what the rest of the week looks like:
Tuesday: The Coca-Cola Company (NYSE:KO)
Wednesday: Cisco Systems, Inc. (NASDAQ:CSCO)
Thursday: General Motors Company (NYSE:GM), PepsiCo, Inc. (NYSE:PEP)
Cisco’s cash pile
Last week, high-profile hedge fund manager David Einhorn brought legal action against Apple Inc. (NASDAQ:AAPL) as part of an effort to get the company to return more of the company’s cash to shareholders. Technology companies have disproportionate cash-holdings relative to companies in other sectors, and Cisco Systems is no exception. At the end of October, Cisco had $45 billion in cash and short-term investments against $16.3 billion in long-term debt, making for a net cash position of $28.7 billion — equivalent to $5.40 per share (the stock closed at $21.16 on Friday).
Cisco does pay a dividend: The yield is currently 2.6%. Over the 12-month period ending in October 2012, it repurchased nearly $3.3 billion worth of its own shares for a repurchase yield of 2.9%. Add the two together and you get a yield of 4.5% — not shabby, but we’re a far cry from the share’s forward earnings yield — the inverse of the price-to-earnings ratio — of 9.4%.
At their current (under)valuation, repurchasing shares increases the intrinsic per-share value for remaining shareholders. Technology companies operate in a rapidly shifting environment, and it is wise for Cisco to retain a significant amount of cash on hand. However, a one-time dividend or an increase in the share buyback program would not be out of order right now.
The article Cisco: Show Me the Money! originally appeared on Fool.com and is written by Alex Dumortier, CFA.
Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him @longrunreturns. The Motley Fool recommends Cisco Systems.
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