Jim Cramer’s Latest Predictions and 5 Stock Recommendations

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

Number of Hedge Fund Holders: 66

Cisco Systems, Inc. (NASDAQ:CSCO) provides internet-based networking and related products. The journalist investor has advised his viewers to make use of the buying opportunity created in the growth sector as a result of increasing interest rates, identifying Cisco Systems as one of the stocks that looks attractive based on the earnings guidance of the firm in the coming months and its solid dividend history. 

On July 12, Rosenblatt analyst Mike Genovese initiated coverage of Cisco Systems, Inc. (NASDAQ:CSCO) stock with a Neutral rating and a price target of $48, noting that the firm was losing market share in key tech areas. 

At the end of the first quarter of 2022, 66 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Cisco Systems, Inc. (NASDAQ:CSCO), up from 57 in the previous quarter worth $3.4 billion.

In its Q1 2022 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Cisco Systems, Inc. (NASDAQ:CSCO) was one of them. Here is what the fund said:

“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 drawdowns, while Cisco’s stock price remained anemic?

It seems the answer is in their differing growth profiles in the years afterwards. For example, Cisco Systems, Inc. (NASDAQ:CSCO) 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 Systems, Inc. (NASDAQ:CSCO), 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.”