3 Developments That Can Unleash Cisco’s Value

For investors looking for a blue chip name to profit from global growth of information technology, it’s hard not to look at Cisco (CSCO).

The San Jose company provides the “guts” of information technology infrastructure – enterprise networks, network routers and switches, and other IT products and services. Cisco’s closest competitor for its core data networking business, Juniper Networks (JNPR), is comparatively tiny, with Cisco’s market capitalization five times that of Juniper’s ($83.2 billion to $16.4 billion) even at Cisco’s depressed share price of $15.12. Cisco earns almost 10 times more revenue than Juniper ($40.04 billion to $4.093 billion for the 2010 fiscal years of each company.

There is no shortage of opinion that Cisco is undervalued – and I argued last August that the stock had good long-term potential at $22.05. But the shares have had a miserable year, falling 34% from the close a year ago (June 11, 2010 at $22.91) even though the company began paying dividends. By comparison, the Dow average rose 17% over the same period.

For those who believe Cisco is a bargain, this pervasive downtrend raises the question of when and what will boost the shares. I believe that the stock remains undervalued, and that three major long-term milestones can unlock its full potential:

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