Cisco Is Down Almost 12% In Last Month; Will It Fall Another 10% to 12%? Watch List Candidate
CSCO is a high-quality company with active and deep options so dividend and income investors can sell covered calls and cash secured puts fairly easily.
By Donald E. L. Johnson
Cautious Speculator
Cisco (CSCO) has dipped, and it might dip some more in this market.
It is at the point where dividend and income investors who are sitting on the sidelines waiting for the market to bottom are evaluating high quality, mega cap stocks that belong on their watch lists.
CSCO fits the bill because already its $55.77 price is affordable for a lot of small portfolios. To reduce risks, experienced investors like to diversify their stocks and options portfolios with a dozen names in each portfolio, or as many as they can afford.
CSCO is trading at about 83% of its estimated fair value, according to StockRover.com. And its price to free cash flow (P/FCF) valuation ratio is a reasonable 16.7, compared with other Dow Jones Industrials index stocks. Their average P/FCF is 22.3.
The stock is trading about 10.5% below the average Wall Street analysts’ target price of $61.63 and at about 80% of the high target price of $70.
For those who know they can’t forecast stock prices, this is a time to stay out of the market and wait for the market to bottom.
But some might “nibble” by selling CSCO 3.18.22 (28 days) $47.50 strike (delta -0.06) cash secured puts. That strike gives the trader another 14.5% discount, or margin of safety (MOS) on the trade. Lower risks bring lower annualized returns on risk (RoR), but that’s what cautious traders do in correcting markets like this.
Similarly, there are nimble traders who will buy the stock hoping it is near the bottom and sell CSCO 3.18.22 $55 strike (delta .57) covered calls for about $2.15, or an annualized RoR of about 31%.
If a trader could roll the trade about 11 times in the next 12 months, an annualized 30% hedge or MOS might be worth the risk for some traders.
But it looks too risky to folks who are just trying to get 10% to 20% annualized yields on their stocks while they preserve their capital by not doing very risky trades. All trades involve risk.
I wrote about another Dow Jones 30 stock, Walmart (WMT) yesterday. That article includes StockRover.com data about all 30 of the Dow Jones stocks, including CSCO.
Question: What questions do you have about CSCO? We can discuss it in comments.
LINKs:
Home Page. See previous articles on other stocks.
Calls vs Puts Options: What’s the Difference?
A video on how to place options trades on Think or Swim.
Beware
Like all investing, trading stocks and options is risky. If you can’t sleep with market risks, you might want to let someone else do your trading. Consider an option trading ETF like XYLD, which I own. I also trade its calls and puts. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I don’t own or have options positions in CSCO or business relationships with Cisco.
@realDonJohnson. I’m active on twitter where I tweet about trading and other things and link to tweets about stocks.