Cisco Options Traders Bet Stock Will Rebound 7% Short Term

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Cisco Options Traders Bet Stock Will Rebound 7% Short Term

(Please keep in mind that the author of this fundamental study is also a financial writer and portfolio manager.)

Cisco Systems, Inc. (CSCO) stock is enjoying a good year, with shares up 18%. However, it has lately fallen prey to a larger stock market sell-off, falling by as much as 10% from those highs. Some options traders are now predicting that the stock would rise by 7% by the beginning of next year.

One reason for the optimistic outlook is that experts anticipate substantial profits growth in the fiscal first quarter and throughout the year. Even better, since August, they have been boosting their profit predictions and price targets.

CSCO data by YCharts

Bullish Bets

In recent weeks, open interest in the $47 call options expiring on January 18 has more than quadrupled to 27,000 contracts. To make a profit on those calls, the stock must increase to $48.60.

A 13% Rise

Analysts predict that the stock will rise another 13% to $51.25. In fact, 69% of the 29 analysts that follow the company rank it as a buy or outperform, with 31% rating it as a hold.

CSCO Price Target data by YCharts

Better Growth

Analysts anticipate that the corporation will post solid fiscal first-quarter earnings in the middle of November. Earnings are predicted to increase by 18% on a 6% increase in sales. (For more, read Cisco’s Stock Could Reach Its Highest Level in 18 Years.)

Earnings are expected to be excellent in 2019, increasing by 15% to $3.00 per share on sales growth of 4% to $51.5 billion. Analysts predict that profits growth will slow to 9% in 2020, with sales growth slowing to 3%. However, sales and profit forecasts for 2019 and 2020 have been growing since August.

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CSCO EPS Estimates for Current Fiscal Year data by YCharts

The company trades at a 2019 PE ratio of 15, resulting in a growth adjusted PEG ratio1, making it appealing at present prices. If the firm delivers outstanding results in a few weeks and gives analysts a cause to raise profit projections even higher, the stock will have a solid motive to continue rising.

Michael Kramer is the Founder ofMott Capital Management LLC, a registered investment adviser, and the manager of the company’s actively managed, long-onlyThematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer’s bio and his portfolio’sholdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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