CSCO full ahead

30Sep09

While it’s been a very lucrative and exciting summer for virtual every market participant due to the markets’ broad rally, it’s been unusually quiet from an individual stock perspective. As we continue to watch the macro debates on inflationary vs deflationary risks, double dip vs ‘V’ shaped recovery, it makes sense to retrench into less speculative and more fundamental bets; especially when we consider most portfolios are in a desperate need of rebalancing as speculative energy and finance sector bets have paid off handsomely.

Long term, Cisco remains a safe long – however, I see short term and medium term upside for Cisco as the industry struggles through the demise and breakup of NT. Short term, both NT and the acquirer’s customers are increasingly concerned about which product lines will survive and be supported moving forward – the best mitigation here is simply to migrate over to Cisco (or other vendor). Medium term, NT business is in much worse shape than has been reveled – as NT has moved through bankruptcy many customers have stocked up on spares, equipment, and systems in order to mitigate the potential discontinuation of NT operations – driving a spike in 2008 revenues. These purchases have artificially inflated the perceived demand and strength of the NT portfolio and will ultimately be strong drag on any acquirers efforts to integrate and streamline the NT portfolio.

More speculatively, one stock I have am staying close to is DWI.TO (Dragonwave) – if they can manage to secure the wireless tower backhaul business with AT&T, the sky’s the limit. The industry is well aware the AT&T has struggled in addressing the technology and cost challenges associated with wireless backhaul and Dragonwave maybe a tactical solution. My gut feel is that Dragonwave will be taken out via acquisition by Ciena, Ericsson, Nokia, or Alcatel. Of course, this growth is good and ultimately supports Cisco who manages the backend – routing and data center components.