Cisco Gets a Buy Call on 'Fast Money'

Cisco (CSC0) looks like an undervalued stock and now's as good a time to buy it, Karen Finerman said on CNBC's Fast Money yesterday. She said she bought the stock today. Long term call options, or LEAPs, look attractively priced for investors willing to buy anything in a bear market that some think could go down another 10% or 20%.

The CSCO January 2010 25 strike price call are priced at $2.62 per share, or 12.3% of Monday's closing price of $20.30. The CSCO call options that expire in January 2010 with a $25 strike price show that speculators think the stock will touch the $27.62 per share breakeven price before they expire. The options are slightly over priced in terms of an implied volatility of 35%, which is a bit above the stock's historical volatility of 32%. Both are below their 12 months highs. The bearish CSCO January 20 put options show other traders think the stock could touch $17.33 before they expire.

During the last 52 weeks, CSCO has traded betwee $21.51 and $34.24. It's down 5.62% in the last week, down 14.93% in the last month, down 19.39% year to date, down 24.13% in the last 12 months and up an average of 3.75% a year over the last three years. The three year expected total return, according to Morningstar.com, is 21.45%. The stock is trading at a 0.89 PEG ratio (PE/projected earnings per share) and at 69% of Morningstar's estimated fair value of $31. This means that CSCO is a five-star stock, according to Morningstar. CSCO's daily and weekly charts are bearish, but it's point and figure chart shows a bullish price objective of $38, which is 78% above the current price. The charts are here.

Disclosure: I don't own CSCO but my investment club does.

 

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[Donald E.L. Johnson]

July 15 UPDATE: The point and figure chart has broken out on the down side and now shows a bearish price objective of $14.