tag:blogger.com,1999:blog-7294165939647321702.post7147548092432064085..comments2024-03-11T10:31:06.107-04:00Comments on <center><a href="http://www.barelkarsan.com">Barel Karsan - Value Investing</a></center>: Dominant and Cheap: Cisco SystemsSaj Karsanhttp://www.blogger.com/profile/04493152766022812984noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-7294165939647321702.post-37244482668426670552011-05-15T02:17:40.320-04:002011-05-15T02:17:40.320-04:00I'm a "IT Architect", and enjoy inve...I'm a "IT Architect", and enjoy investing as a hobby. For Value Investors, tech companies can be difficult to valuate & many have offerings that can easily be replicated & improved (e.g. does anyone remember GeoCities, Netscape, Palm, AOL, Gateway, Nortel, etc...). <br /><br />Cisco; however, jumps out to me as a business with a durable competitive advantage. They truly run the "backbone of the Internet" & no one even comes close to providing competition in the networking world. Now they are poised to take advantage of the inevitable adoption of Cloud computing & for the first time, they have entered the server space, released an impressive lineup that is (IMO) going to take away significant market share in the server space away from IBM, HP, & DELL. As you guys have already mentioned, the ratios & price look good.<br /><br />As a techie, I'm not as high on MSFT, because virtualization & Cloud are going to make it easy for enterprises to easily switch to alternate operating systems (e.g. MacOS, Google, Linux), mail systems (e.g. Google Apps, Amazon EC2), & cloud will render a ton of MSFT's supporting applications irrelevant.JP Malonehttps://www.blogger.com/profile/06320791801955870956noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-87076983820590189902011-05-06T11:19:52.441-04:002011-05-06T11:19:52.441-04:00What about all these management changes? Will Cha...What about all these management changes? Will Chambers's stabilize this company? See http://www.bloomberg.com/news/2011-05-05/cisco-departures-reflect-frustration-over-management-structure.htmlAlistairhttps://www.blogger.com/profile/02843671805320799916noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-58226589247716202752011-02-21T12:13:37.211-05:002011-02-21T12:13:37.211-05:00Saj,
I agree. I am long on CSCO since last fall m...Saj,<br /><br />I agree. I am long on CSCO since last fall myself. The price is even lower at the time, which offers a continued opportunity in my opinion.Rookienoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-66985387343352159682010-12-07T13:07:03.222-05:002010-12-07T13:07:03.222-05:00just as a side note.. "quantitative strategie...just as a side note.. "quantitative strategies for achieving alpha" by tortoriello is a great book! ;-)<br /><br />best wishes,<br /><br />nellnellnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-17139953979375642392010-12-07T13:01:43.601-05:002010-12-07T13:01:43.601-05:00yes, i think that we should adjust tax rate at cis...yes, i think that we should adjust tax rate at cisco to a normal level (~35-40%) ..i dont think that very low taxes like in irland are sustainable longterm.. furthermore it is a bit unfair to tax one firm with 35% and one firm with 22% ..lets see if we get a material difference:<br /><br />equity = $44,285<br />longterm debt = $12,188<br />excess cash = ~investments = $35,280 <br /><br />opincome = $9,164<br />tax rate = 40%<br /><br />roic = $9,164 * 0,6 / ($44,285 + $12,188 - $35,280) = ~25%<br /><br />anyway, i did a calculation with incremental roic ..FY2009/2010 roiic = ~75% ..looks like very good and profitable growth ;-) ..cisco is a buy ;-)nellnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-75992425759494148762010-12-06T22:00:29.425-05:002010-12-06T22:00:29.425-05:00Hi Nell,
I used a 22% tax rate, rather than the 1...Hi Nell,<br /><br />I used a 22% tax rate, rather than the 17.5% Cisco experienced in 2010. Is the 2010 rate the "unsustainable" rate you refer to, or did you mean something else (e.g. Brazilian operations etc.)Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-10661784336118861462010-12-04T06:52:02.975-05:002010-12-04T06:52:02.975-05:00hi saj,
did you adjust roic for low (-> unsust...hi saj,<br /><br />did you adjust roic for low (-> unsustainable) tax rate? <br /><br />best wishes,<br /><br />nellNellnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-39675750925367892562010-11-30T21:59:37.470-05:002010-11-30T21:59:37.470-05:00Hi Jay,
Note the formula I use (stated in the las...Hi Jay,<br /><br />Note the formula I use (stated in the last line of the post). I think the main difference between our calculations is that I am not including cash as part of the "invested capital".Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-55392142196284948482010-11-30T21:47:40.033-05:002010-11-30T21:47:40.033-05:00Saj,
Thanks for the excellent post, as always.
I...Saj,<br />Thanks for the excellent post, as always. <br />I'm not seeing how you're coming up with your ROIC numbers. Looking at the annual numbers from July of this year (from Morningstar):<br />Total equity = 44b<br />Debt (which I think you mean total liabilities-current liabilities) = 17b<br />OpIncome = 9b<br /><br />Which gives you a ROIC of ~15%, which is still pretty nice, but not the 30% number you have in your chart.<br />Thanks.<br />JayJaynoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-34808125381666930082010-11-30T20:59:22.796-05:002010-11-30T20:59:22.796-05:00Hi Anon2,
You are right, revenue recognition has ...Hi Anon2,<br /><br />You are right, revenue recognition has been brought up about this company before. But it seems to be a small part of their overall revenue. Anymore, more on that <a href="http://blogs.cisco.com/news/cisco_statement_on_recent_network_world_blog_post/" rel="nofollow">here</a>.Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-7836905416007821132010-11-30T20:57:10.279-05:002010-11-30T20:57:10.279-05:00Hi Anon1,
There's a lot of issues at stake be...Hi Anon1,<br /><br />There's a lot of issues at stake between dividends and buybacks. On the other hand, dividends are usually taxed to the investor, so buybacks are more tax-friendly.Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-2507785860324479242010-11-30T12:09:48.660-05:002010-11-30T12:09:48.660-05:00One issue that seems to come up relates to vendor ...One issue that seems to come up relates to vendor financing (i.e., CSCO inflating sales numbers by financing those sales to customers). This was a big issue during the dot-com years. I'm not sure how to track down the info, however. Was it an issue for you?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-23205328462859512892010-11-30T04:37:54.794-05:002010-11-30T04:37:54.794-05:00Returning equity via dividends is much more shareh...Returning equity via dividends is much more shareholder friendly. The buybacks prop up the share prices giving a disproportionate benefit for employee share options.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-58544353109241819622010-11-29T19:26:18.985-05:002010-11-29T19:26:18.985-05:00Hi Water and Trevor,
You guys beat me to the punc...Hi Water and Trevor,<br /><br />You guys beat me to the punch; tomorrow's post is about Microsoft.<br /><br />Hi another,<br /><br />First, it's important to note that options are expensed, so they reduce the profit numbers quoted already. Second, in the notes to the financials, you can see all the options outstanding, and subtract their value from your valuation of the company. To directly answer your question though, you just have to look at how many shares Cisco has now versus a few years ago (depending on whatever time period you choose). There are currently 5.54B shares outstanding, whereas in 2005 there were 6.33B.Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-60247542188696495282010-11-29T16:49:37.979-05:002010-11-29T16:49:37.979-05:00i don't find such large-cap companies which ar...i don't find such large-cap companies which are the core of the wall-street back and forth to provide much in the way of value to a retail investor.<br /><br />there are far too many preferable investments in the mid-cap/small-cap world which are better suited to the goals of any retail investor than companies like Microsoft and Cisco.<br /><br />Just my .02Investmentshttps://www.blogger.com/profile/02017995482194693773noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-39992767126501867522010-11-29T16:21:05.729-05:002010-11-29T16:21:05.729-05:00Thanks for the idea. I do not know much about CSC...Thanks for the idea. I do not know much about CSCO but from reading various news sources casually I learn that the company issues considerable amount of stock options to execs and employees. How does the company share buyback compare against stock issuances due to ESOP?another value investorhttps://www.blogger.com/profile/07659083327214275843noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-20622258181744985672010-11-29T10:15:45.596-05:002010-11-29T10:15:45.596-05:00Yes I agree with you here. You might also find Mic...Yes I agree with you here. You might also find Microsoft interesting. Unloved (low PE), great balance sheet, tremendous long term growth historically.trevor scottnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-67549756306027756132010-11-29T09:30:30.905-05:002010-11-29T09:30:30.905-05:00You can say the same thing about Microsoft, and it...You can say the same thing about Microsoft, and it's even cheaper.<br />High ROIC, ROE coupled with low EV/Free Cash Flow and low investor sentiment make good risk reward bets.Water Investorhttps://www.blogger.com/profile/03809143441080691135noreply@blogger.com