Pairs Trade: Cisco Systems Is Catching Up to Juniper Networks

(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)

Cisco Systems (CSCO) has steadily declined since reaching a peak in April, 2010. For much of this time, analysts and commentators seemed to focus on company-specific problems as the blame. It seemed competitor Juniper Networks (JNPR) was dancing circles around the lumbering giant. The performance gap between the two companies reached a peak earlier this spring. Since then, JNPR has fallen precipitously. CSCO finally printed a bottom in August with 8 1/2 year lows. The performance gap between CSCO and JNPR has suddenly shrunk dramatically; CSCO’s problems are no longer theirs alone.


Cisco Systems is catching up to Juniper Networks
Cisco Systems is catching up to Juniper Networks

Source: Stockcharts.com

When this CSCO vs. JNPR price ratio increases another 16% to .95, it will be time to consider a possible pairs trade. {snip}

Fundamental valuations on both CSCO and JNPR are at decade lows; thus, neither stock has a relative valuation advantage.

Since 2003, JNPR has only closed the year with a trailing P/E below 25 once {snip}

CSCO has never closed a (fiscal) year with a trailing P/E as low as the current 14. {snip}

Finally, note that JNPR is currently trying to support its stock with a major stock buyback program. On July 26, JNPR announced earnings and noted that it repurchased “…3.9 million shares in the second quarter of 2011, at an average price of $38.94 per share, or approximately $150 million dollars.” {snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)

Full disclosure: long CSCO

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