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 »

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 »

Today’s stock pitch is for Akamai, the leading global service provider for accelerating content and applications online (such as streaming video). After growing their profits by a stunning 73% in the third-quarter earnings report, you may wondering whether Akamai (NYSE: AKAM) is going to continue their unbelievable growth or fall to their main competitor Limelight Networks (NYSE: LLNW). Answer? They are both of good value. Limelight is undervalued right now at $12.80 a share, while Akamai certainly is better poised to control the content-delivery industry with its superior client base (YouTube, MTV, Apple, XM, etc.).

Why own Akamai you ask? In a press release today (October 30th, 2007), Akamai introduced the industry’s first and only PCI-compliant site acceleration service. “PCI-compliant site and transaction acceleration will provide companies conducting ecommerce online with the assurance that sensitive credit card information is transmitted over a platform that is PCI-compliant (Source: Akamai Technologies, Inc.).” This is just icing on the cake, as I would have recommended the stock with the same authority before this news. It just goes to show how well this company is adapting to change, staying ahead of the curve. Read the rest of this entry »

Today’s stock pitch is for NVidia, a tech stock that has totally taken off in the past year. Nvidia (NYSE: NVDA) is a GPU (graphics processing unit) company that has been producing high-end graphics cards for years. They also offer solutions for media and communications processors (MCPs), handheld GPUs, and consumer electronics. After being in constant competition with AMD, 3dFX and STMicroelectronics, NVidia has effectively beaten its competitors and is beginning to see most of the workload in the graphics industry. Recent trends in increasing processing capabilities has decreased the demand for so-called “onboard” graphics cards, typically made by Intel, while increasing the demand for chips that can handle more. This is where NVidia comes in.

NVidia is currently seen as overvalued in the market, yet their share price continues to trend upwards. Regardless, we are going to go ahead and consider this company for our stock watch list instead of investing immediately, we want to wait for a more attractive margin of safety. So why is NVidia so attractive to me? Primarily, it has been their outstanding ability to grow capital increasingly year after year. According to market research firm, Jon Peddie Research, “NVDA’s share of the graphics market climbed to 32.6% in the second calendar quarter of 2007.” This is up from a 19.7% gain just one year earlier. Read the rest of this entry »