Cash-Rich Cisco Stock: Perpetually Misvalued

There are two types of non-beginner mistakes that I try to warn against. The first is that people shouldn’t generate a cash-generating asset simply because it has experienced a change in the business cycle that demanded a dividend cut, particularly if the business deals in commodities (see Conoco’s fall to $31 shortly after its dividend cut compared to the current price of $43 for an example). The other mistake involves ignoring companies with truly superior balance sheets–the Berkshire Hathaways, Googles, Microsofts, Johnson & Johnsons, and Ciscos of the investment world that are much stronger and have the capacity to quickly increase their earnings power in ways that a cursory P/E analysis do not make apparent.

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