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Don’t Give Your Money Away on Cisco Stock as Bearish Trend Isn’t Yet Done

September 30, 2020
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a close up of a sign: Where and Why You Can Steal Cisco Stock

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Where and Why You Can Steal Cisco Stock

In a bull market seemingly made up of influential technology stocks, not all companies of that caliber have enjoyed 2020’s new socially distanced normal. Cisco Systems (NASDAQ:CSCO) and its shareholders can attest as much. But has the time finally come to buy Cisco stock? Let’s examine what’s happening off and on the price chart, then offer a risk-adjusted determination in alignment with those findings.



a close up of a sign: Where and Why You Can Steal Cisco Stock

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Where and Why You Can Steal Cisco Stock

Despite September’s market correction, it’s not exactly a secret the large-cap, tech-heavy Nasdaq Composite index has been a great spot to invest this year. The leadership of course has been the byproduct of muscular rallies in trillion-dollar-plus outfits and rising growth stock stars. Apple (NASDAQ:AAPL). Microsoft (NASDAQ:MSFT). Amazon (NASDAQ:AMZN) and others, as well as dizzyingly powerful gains from growth juggernauts such as Tesla (NASDAQ:TSLA) and Zoom Video (NASDAQ:ZM) are the much lauded suspects.

It is what it is. There’s also no arguing those companies’ products and services, now more than ever, have proven essential amid the novel coronavirus pandemic. Well, maybe not Tesla. Still, it would be foolhardy for investors to think they can simply throw a dart at the wall covered with blue-chip tech stocks and expect to hit a bullseye.

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Not the End of Days for Cisco Stock

Cisco investors are painfully aware of this fact. On the year — and in the face of the Nasdaq being up nearly 24% or against AAPL stock’s burly 55% return — CSCO shares are down roughly 5%. The other truth facing Cisco stock holders are the company’s networking and security services haven’t proven wholly critical amid the pandemic. Last month’s sales warning is certain evidence of that.

To be fair, it’s not the end of days for Cisco stock. The tech giant remains a blue-chip in every sense with massive cash reserves, a healthy dividend, as well as the ability to regroup and grow its brand once more. Still, if there’s another coronavirus wave to hit anywhere, CSCO’s bearish trend shows one already in motion and nowhere near yet finished.

Seeking Transparency in Price Chart




graphical user interface, chart, histogram: Cisco Systems (CSCO) bearish trend in motion

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Cisco Systems (CSCO) bearish trend in motion

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Source: Charts by TradingView

Technically, I’ve been upbeat on the broader market and in particular large-cap tech since Friday. That day the Nasdaq Composite staged what I’m interpreting as a ‘stealth’ bullish follow-through day or FTD. I may be alone in that optimism.

What I view as increasingly hard-to-quantify volume confirmation for a FTD event due to fragmented and less-than-transparent third markets is still held at face value elsewhere. I’m referring to Investor’s Business Daily. And apparently that secondary indication was missing from Friday’s price action.

Still and despite my broader enthusiasm that the Nasdaq Composite has in fact bottomed, in an investing game where stocks also don’t always maintain strong correlations, buying into Cisco stock’s relative and absolute price weakness doesn’t sense.

Profit Potential in a Short

Plain and simple, there’s insufficient evidence to suggest CSCO stock’s bearish cycle is complete. Moreover, given today’s weak stochastic positioning and a bottom which may not come into play until shares challenge key support from $27.50 – $33, it may prove an opportune time to place a bearish wager in Cisco.

Bottom-line, if our bearish outlook on shares is correct or simply a trend in motion which remains in motion, there stands to be solid profit potential for investors positioning short in Cisco. As much, a well-structured bearish December $35 / $30 put spread in CSCO which could also serve as a portfolio hedge, looks very approachable.

On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

Gallery: 10 Blue-Chip Stocks Ideal for Any Investor (InvestorPlace)

Even in the best of circumstances, blue-chip stocks hardly inspire much enthusiastic attention, particularly among younger investors. Sure, they make up core holdings of our retirement funds. But as an individual play, many if not most people are angling for hot growth names, not necessarily industry giants. After all, you’re probably not going to get rich by betting on companies everyone knows about. That sentiment is multiplied ten-fold during this novel coronavirus pandemic. Initially, virtually everything crashed at the onset of the crisis. But as Wall Street digested the dynamics of the new normal, the usual suspects – as in, the sexy high-fliers – stole most of the limelight. Not too many were excited about gambling on blue-chip stocks. And that’s largely because electing blue chips is hardly what you call gambling. If you want to have your hundred-bagger potential, you can easily do so with the over-the-counter exchanges. But bear in mind that 90% of startups fail. With such glaringly bad odds, you will soon end up in the poorhouse if you’re not careful. Immediately, such a high failure rate should change your mind about high-risk growth ventures. Sure, they have potential, but potential doesn’t pay the bills. On the other hand, you can improve your odds of success in the markets by sticking with proven blue-chip stocks to buy. Their days of triple-digit returns may be over, but these stalwarts dominate their industries for a reason. Best of all, tried-and-true organizations over the long run usually beat the benchmark S&P 500 returns quite handily. And because many of them pay dividends, you can look very smart by just picking household names. Have I changed your mind yet? Here are 10 blue-chip stocks to consider for a new way to approach profitability. Coca-Cola (NYSE:KO) McDonald’s (NYSE:MCD) Disney (NYSE:DIS) Home Depot (NYSE:HD) Procter & Gamble (NYSE:PG) Johnson & Johnson (NYSE:JNJ) Merck (NYSE:MRK) Intel (NASDAQ:INTC) IBM (NYSE:IBM) Altria Group (NYSE:MO) Finally, one last nugget of wisdom. While there’s nothing wrong with chasing the latest Robinhood fad in the new normal, most of these wagers run counter to their fundamentals. But with blue-chip stocks, you have greater assurances of staying coupled with reality. Therefore, these 10 companies are less likely to leave you scratching your head.


Blue-Chip Stocks: Coca-Cola (KO)

Over the years, young people have eschewed sugary drinks for healthier alternatives. Gone are products from soft drink giants such as Coca-Cola, in are beverages such as sparkling water. Therefore, you may be tempted to write-off KO stock from your list of blue-chip stocks to buy. However, that might be an overreaction. No matter how you look at it, Coca-Cola represents a cheap respite. That might be a strong selling point, especially if we head toward a prolonged recession. As well, its products provide a cheaper pick-me-up than say, something from Starbucks (NASDAQ:SBUX). Finally, the kicker for me is that KO stock is a consistent winner. During the ebb and flow of the 2000s decade, Coca-Cola shares gained 2.64% on an annual average basis, whereas the S&P 500 index lost more than 2%. Over time, that adds up to big money. For the consistency, you’ll want to keep Coca-Cola on your list of blue-chip stocks to buy.


McDonald’s (MCD)

When it comes to blue-chip stocks, it doesn’t get more iconic than McDonald’s and MCD stock. The burger joint really brought to the world the concept of fast food. Today, McDonald’s is one of the most recognizable brands in the world and shows no sign of slowing down. That is meant quite literally. In the 2000s decade, the annual average returns of MCD stock was 7.2%. As I mentioned above, the benchmark S&P 500 slipped more than 2%. To be fair, the index jumped to an average of 12% returns last decade. However, McDonald’s responded with 17% returns. Moving forward, it’s possible that the company gains traction with younger people (who again favor healthier alternatives) through convenient delivery options like curbside pick-up and automated kiosks. While you’re waiting for this narrative to play out, you can pick up MCD’s 2.3% dividend yield.


Disney (DIS)

Another iconic piece of American corporate history is Disney. But unlike sugary beverages and greasy fast food, the Magic Kingdom is wildly relevant with audiences of all ages. Obviously, parents and children love the kid-friendly content. For older kids and full-grown adults, Disney owns the massively popular Star Wars franchise. In my view, owning the rights to Star Wars is an excuse to print money. And management is exercising this option whenever possible, bolstering the case for DIS stock. Admittedly, the novel coronavirus really put a damper on Disney’s broader business portfolio. Given the gargantuan disruption to the movie industry, you might be tempted to avoid DIS stock. However, keep in mind that in the volatile 2000s decade, Disney still eked out an average annual profit of nearly 1.2%. In the following decade, DIS killed it with a 21% average return. So, the lesson of the day is, keep the faith and hold DIS in your list of blue-chip stocks to buy.


Home Depot (HD)

One of the few constants in the broader retail space is Home Depot. During severe disruptions, whether that be hurricanes, earthquakes or in this case, a pandemic, the home improvement and furnishings giant represents an essential service. However, calamities don’t happen all the time, thankfully. Therefore, you might be tempted to dismiss HD stock as an investment with a narrow window of opportunity. But the facts say otherwise. True, Home Depot is a stalwart among blue-chip stocks to buy and that usually implies slow and boring. However, HD stock has been surprising over the past two decades. Yes, shares lost an average of 3.4% annually in the 2000s, comparing unfavorably to the S&P 500’s loss of 2.3%. However, in the decade after, Home Depot stunned with an average return of 27%, well above the S&P’s return of 12%. So yes, HD is boring, but boring can be very profitable.


Procter & Gamble (PG)

During the peak of corona panic, Procter & Gamble enjoyed tremendous demand for its Charmin toilet paper brand. Because as we all know, nothing is more important during a health crisis than being able to do “number two” in comfort. And I’ve got to admit that Charmin is very comfortable indeed. But even without this once-in-a-blue-moon catalyst, PG stock is a relevant play for all investors. That’s because good times or not, we can’t do without the underlying company’s vital household goods. Let’s face it – even in a severe recession, we’re going to find time to brush our teeth and make ourselves look presentable for employment opportunities. Despite the secular nature of PG stock, it has performed very well over the past 20 years. Many analysts talk about Procter & Gamble being recession-resistant and they’re right. In the 2000s, PG gained an average of 4.5% annually, while benchmark indices went negative. In the following decade, PG still managed to keep up with the S&P 500, delivering 11.7% returns versus the index’s 12.1%.


Johnson & Johnson (JNJ)

In recent years before the pandemic, Johnson & Johnson was struggling mightily in the PR department. Multiple scandals made investors question whether JNJ was worthy of consideration among blue-chip stocks to buy. So, in a way, the coronavirus was exactly what management needed. With a raging pandemic, not too many people are focused on Johnson & Johnson’s troubles. Indeed, the company can do much to restore goodwill. It’s one of many pharmaceutical companies developing a Covid-19 vaccine. More importantly, Johnson & Johnson has the capacity to produce a vaccine on a large scale. Therefore, JNJ stock is an interesting pick if you want a reliable coronavirus play. But even if you don’t care about that, JNJ stock is valuable for another reason: like Procter & Gamble, it performs well during recessions. When the dust settled on 2009, the decade featuring the Great Recession took down the major indices. But JNJ delivered an average annual return of 4.4%.


Merck (MRK)

Although healthcare as a sector has garnered much more attention due to the coronavirus, not all individual names have benefitted. Take Merck as an example. One of the leaders in cancer research and therapy, MRK stock is still in the negative on a year-to-date basis. Mostly, this is because people with pre-existing conditions are at greater risk regarding Covid-19. However, at some point, this pandemic will fade away. When it does, MRK stock could see resurgence in demand. With hospitals no longer being taxed with coronavirus patients, they will provide much safer environments for cancer patients and those with long-term illnesses. Further, MRK has demonstrated the ability to bounce back from trouble. In the 2000s decade, shares on average dropped 3% annually. But from 2010 through 2019, MRK delivered average returns of over 15%. Over the past 20 years, this amounts to a 6.3% average, above the 4.9% for the S&P 500.


Intel (INTC)

Long considered one of the leaders in the semiconductor space, Intel has been a basket case in recent years. Multiple product delays and setbacks have tried shareholder patience. But when Intel declared that its advanced 7-nanometer chips will be delayed until late 2022 or early 2023, stakeholders ran for the exits, causing INTC stock to tumble badly. I’m not going to defend Intel because it’s just a terrible look. From the heights of excellence to the depths of mediocrity, INTC stock has gone full circle. Still, I think there are some opportunities for risk-tolerant contrarians due to the strength of the underlying brand. Additionally, INTC historically has shown resilience. When the calendar turned on 2009, shares found themselves down 1.9% down on average for the decade. But in the next 10 years, INTC averaged nearly 16% returns annually. Since 2000, shares have returned 6.9%, notably higher than the S&P’s 4.9% over the same period.


IBM (IBM)

Once a revered stalwart in the technology space, IBM has flirted with irrelevance over the years. To be sure, IBM stock is the only investment among the blue-chip stocks on this list that has underperformed the S&P 500 over the past 20 years. So, why bother with Big Blue? Fundamentally, I appreciate what the company is bringing to the table. While shedding the image of its legacy businesses, IBM is moving forward with multiple innovations in cybersecurity, the blockchain, artificial intelligence and other relevant segments. Personally, I think patient investors can be rewarded. Further, the Covid-19 pandemic could be the turning point for IBM stock. Because the crisis has forced many organizations to rethink the size of their workforce, AI will play a greater role in terms of cost savings. Plus, the shift toward moving everything digitally has driven up demand for enterprise-level cybersecurity.


Altria Group (MO)

No matter what anyone says, it will be hard to shake the image of blue-chip stocks as boring investments. But Altria Group is one example that could help bring new eyeballs to large-capitalization companies. For starters, MO stock is what you would consider a “vice” investment. Obviously, tobacco is controversial, giving Altria a bad boy image despite its sanitized, clinical name. But the other bullish factor is that Altria is a top performer. In the 2000s decade, MO stock saw average annual returns of 16.7%. So yeah, it’s true what they say about tobacco: when recessions hit, stress spikes up, resulting in more cigarette smoking. And even with the downturn in adult smoking rates, Altria managed average returns of nearly 18% last decade. With its leadership in smokeless products, Altria can still appeal to the new generation of smokers. And if the smelly stuff hits the fan, you can probably trust MO to bring home the goods. A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. On the date of publication, Josh Enomoto held a long position in MO.

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