(B)(N) CSCO Cisco Systems Incorporated

Drama. The flash news of the day is that the fabled Cisco Systems Incorporated beat the analysts’ best estimate by $40 million or nearly 0.4% on quarterly revenue of $12.1 billion (Reuters, February 13, 2013, Cisco revenue and earnings beat Wall Street estimates and Cisco results beat Street; CEO sees challenge in Europe). The good news added nearly $900 million to the market value of the $112 billion company today and reversed a $1.6 billion decline the day before.

Despite all of that, the company is still only “trading zone” (N) and a long way from inclusion in the Perpetual Bond™ (B). Our estimate of the downside due to the demonstrated stock price volatility is minus ($1.75) on the $21 stock and the current Risk Price (SF) is about the same at $21. We only buy or hold the stock if the ambient stock prices summarized by the Stock Price (SP) (please see Exhibit 1 below, Red Line which is a step-function of the stock prices at which we buy, hold or sell the stock) is plausibly above the Risk Price (SF) (Black Line which is also a step-function updated at most quarterly as new balance sheet information becomes generally available) and for no other reason. Cisco also pays a current dividend of $0.56 per share or $3 billion a year for a current yield of 2.65%. The May put at $21 costs $1.21 per share today and an offsetting sold or short call at $23 sells for $0.33 per share so that for a net cost of $21 for the stock and $0.88 for the “collar” ($1.21 less $0.33) we could buy it today, collect our dividends, trade or roll the options if helpful and patiently wait for the outcome of the “Europe situation” (ibid, Reuters) regardless of the flash news of the day. Best that we trust the company to run its own business and ourselves to mind ours, one would think.

Exhibit 1: (B)(N) CSCO Cisco Systems Incorporated – Risk Price Chart

Cisco Systems Incorporated designs, manufactures and sells Internet Protocol based networking and other products related to the communications and information technology industry and provides services associated with these products and their use.

(Please Click on the Chart to make it larger if required.)

Postscript

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.