The bad times are over for Cisco Systems (NYSE: CSCO). After a drop in early November (and late October), Cisco is primed for a nice future. This is the company that doesn’t lose money. They haven’t dropped an earnings estimate since I can remember and have seemed to grow under the radar ahead of their industry for decades. My bullish discounted cash flow valuation came up with a target price at $35, appropriate purchase price is around $28.

Wanna know why Cisco can’t miss? Because Cisco doesn’t miss. Their past present and future is laden with performance. For whatever reason, investors stopped believing in CEO John T. Chambers, one of the tops in the business, and a business they seem as just too big for sustainable growth. Well their ROIC has been over 18% for the past 5 years, hitting 23.95% YTD. Return on assests and equity are just as good, sitting at 15.17% and 26.27% respectively. What’s better? Their competitors go negative in growth, with the closest coming in with an ROA of 3.06% and an ROE at 7%. Oh and can you say cash flow? Cisco grows cash flow 30%+ year after year without taking on debt! This is a red flag for growth potential with low downside risk.

Competition? Don’t blink twice. Cisco has a virtual monopoly on the networking industry. They are the 4th largest Read the rest of this entry »

Okay, so you are looking over some companies that you think would fit great in your stock portfolio… but how do you know if they are undervalued or not? After all, you probably don’t have access to a Bloomberg terminal (like myself), so all you really have is the internet. Is this enough? YES!

Don’t let the experts tell you what you are capable of in estimating value. I’m going to take you through a typical Rule #1 valuation, a method that I use frequently, and often prefer over the technical discounted cash flow model. So lets get started buying a dollar of value for fifty cents, always following rule #1, “don’t lose money!” Let’s find a good stock first…

1. Does this business have meaning to me?
Never, (and I mean never!) should you buy a company that you don’t understand. If you are buying shares of a company’s stock, you better actually want to own a piece of it. We have to think like owners. If you read something amazing on Yahoo Finance (or wherever you are searching) about how fast X-firm is going to take off… don’t think you are smarter than the market by buying it up when you don’t know squat about what they actually do. I’m into technology, so I am going to buy lots of tech companies like Apple and Google. If I like dining on weekends, I’m going to look at restaurant stocks like Cheesecake Factory and Applebees. If I’m a rock star (or at least think I am), I’m going to look into the likes of XM and Harley Davidson. Throw the “portfolio diversification” myth out the window, if you don’t understand what you are buying, you might as well kiss your gains good bye. Read the rest of this entry »

Week 10, NFL action. It’s the second-half push toward the playoffs, with lots of division play, lets get started…

First the NFC, some great match-ups here, obviously highlighted in a clash between two of the arguably best in the NFL, yes I’m talking about the Dallas Cowboys (7-1) at the New York Giants (6-2). This game will determine who sits on top of the NFC East, and will be a real test for a Giants team who has faced a losing bunch in its past 4-5 games. I see the Giants coming out firing with an early score, but eventually they will be playing from behind in the forth quarter. Being a Giants fan myself, it’s hard to call this a loss… so I’ll sit here and hope for the best in a down-to-the-wire game. The Philadelphia Eagles (3-5) play on the road against rival Washington Redskins (5-3). I see the Eagles eeking out a win in a game that they honestly need a whole lot more than the Skins. In the NFC North, look for the Green Bay Packers (7-1) to be upset by 6-point underdogs, the Minnesota Vikings (3-5)… oh and Adrian Peterson. With even odds, the Detroit Lions (6-2) rule the airways and defeat the Arizona Cardinals (3-5) on the road.

The Chicago Bears (3-5) square off against a 4-straight-loss Oakland Raiders (2-6)…and LOSE! Shocking, but you saw it coming a mile away. Division rivals Carolina Panthers (4-4) and Atlanta Falcons (2-6) dance at Panthers’ stadium. No surprises here, Panthers push above .500 on the year in a low-scoring win. Saint Louis Rams (0-8) almost shouldn’t be mentioned here. They fail to get it done on the road against a surging New Orleans Saints (4-4) team. And we cap off the NFC with a not-so-interesting debockle of the San Francisco 49ers (2-6) by the lowly Seattle Seahawks (4-4) on a Monday Night Football showdown. Read the rest of this entry »

Everybody loves CAKE! After the Cheesecake Factory (NYSE: CAKE) missed their earnings estimate by a cent on November 2nd, there is more reason than ever to get in on this golden stock. Investors saw this shortcoming and completely overreacted by selling this stock down far below their potential. Where other restaurants felt the effects of higher food costs and slower consumer spending, the Cheesecake Factory produced a revenue growth of 15.4% and an outstanding increase in sales. We are seeing CAKE take over the restaurant market, with Brinker (NYSE: EAT) and Ruby Tuesday (NYSE: RT) experiencing flat or dropping sales, and being boosted just yesterday (November 5th) back to a “Buy” rating. When earnings-per-share grows by 13.4% in a bad quarter, we have a winner!

After running a discounted-cash-flow valuation on Cheesecake Factory, I have settled on a target price of $31.25. With this in mind, I’d look to buy the stock at $20-$24, which we have reached today at $22.19. Download my excel valuation here. Once the stock breaks out of its moving-average funk, look to pounce on it (or just pick it up now).

But “why is the Cheesecake Factory such a good company to own” you ask? Well first of all they are starting to dominate the restaurant industry. Just last month, Cheesecake Factory said it would open 17 restaurants in 2008. The company opened 21 in 2007. Read the rest of this entry »