Stock of the Week: This Leading IT Provider Is the Right Play at the Right Time

|July 31, 2023

There’s this perception that if you haven’t heard of a stock… it must be a good investment. You’re getting in ahead of the headlines and the crowd…

But smart investors know that a stock everybody’s heard of can still be very profitable… and in a far safer way…

As long as it’s the right stock at the right time.

And that’s what I have for you with this week’s Stock of the Week.

This leading IT network provider is one of the largest companies in the world, with $51 billion in revenue.

It passes the test from my GVI system… it’s efficient with its cash… and it pays a dividend.

Plus, it is dirt cheap based on its forecast P/E ratio and is undervalued on a discounted cash flow basis.

In other words, it’s checking all the right boxes.

The stock has lagged the rest of the tech sector. But the numbers – and the AI revolution happening all around us – convince me it’s ready to make a move higher.

Get all the details on the stock – including the ticker – in this week’s video.

Click on the image below to watch it.



Time for Stock of the Week. I know many of you live for this, and it’s a good one.

Remember, you don’t just want stocks which you’ve not heard of. There tends to be this psychological perception that if you’ve not heard of it, it must be good.

Well, actually, the two things don’t correlate. Sometimes, having a stock which we may well have heard of – if it’s the right time – can also make us money… and actually make us money in a far safer way than one we’ve never heard of, which could be a lot more volatile.

So let’s have a look at this week’s Stock of the Week. It is one you will all have heard of, but it’s the right time now – that’s the difference. It’s Cisco (CSCO). It’s a leading networking company. It manufactures networking equipment, and it delivers innovative software as well. It’s one of the largest tech companies in the world, as you will know. It’s got $51 billion in revenue. It’s profitable.

Let’s just look at some of the numbers, which brought it to my attention.

Now, as the CEO of a hedge fund – my name’s Alpesh Patel, for those of you who might have missed that – I get given a lot of stock ideas during the course of a week. They come from external and internal sources. Externally, from banks. It might be Goldman Sachs or Morgan Stanley or whoever. And internally, which is more important for me, from my own team. And then I narrow those down to see which ones catch my eye, and this caught my eye.

So let’s have a look at those fundamentals, then.

Now, on my proprietary Growth-Value-Income algorithm, this has got an 8 out of 10. Anything with a 7, 8, 9 or 10 meets my minimum criteria. It’s measured on the valuation of a company; the growth, such as revenue growth and profit growth; dividend yields; momentum; and so on. So, box ticked.

CROCI – cash return on capital invested – was invented by Deutsche Bank and is used by Goldman Sachs Wealth Management for its wealthiest clients. Cisco is in the top quartile. If you want to know why that’s incredibly important, go here.

The stock has good momentum. Sortino – in other words, the reward for the volatility – is not ideal, but then again, volatility itself is low. I like that.

And so far, it’s been somewhat underperforming the market, but I suspect that might be about to change.

When I look at valuation, for instance… With this stock, given it’s a tech company, its forecast P/E ratio at 13.8 is cheap. You’ll know that it is ridiculously cheap. In other words, the current share price is at a multiple of just 13.8 times its forecast profitability. Again, like I said, for a tech company – particularly in the era of AI – that is cheap.

As for forecast growth… Turnover’s forecast to grow, profits before tax are forecast to grow – and grow by a significant amount as well – and it pays a dividend. All things good.

When I look at the price chart, I see it’s been flat for what… four years? With the technological revolution going on around us, it’s been flat for four years. I think it might be about to start picking up. I look at the technical indicators, such as the MACD – the moving average convergence/divergence on the monthly – and I’m starting to think, yeah, we’re going to get a bit of a move up.

Now, it’s not well supported by other banks on the Street. When I say that, I mean it’s not got a slew of “Buy” recommendations. But that means flip one of those “Holds” into a “Buy” and that becomes news. Okay? So “The only way is up” almost is part of the argument.

On a discounted cash flow basis, it’s undervalued.

So, like I said, there’s a lot going for the company. And given that it’s been lagging, I suspect management is looking around and thinking, “Hang on, how come Nvidia and Microsoft are shooting through the roof and we’re being left behind at Cisco? What do we need to do?”

And then, slowly that word “AI” is going to drip into their brain.

Now, that’s the Stock of the Week. Have a great week.

Markets are taking a bit of a sideways-to-downward move at the moment, but I think it’s only temporary and there’ll be more of that when I continue with future articles and broadcasts. I’ll see you on those.

Thank you very much.