Watch this Key Metric to Determine a Company’s Future

Many companies still operate in the real world, where they have to manufacture and ship out physical goods. That can include anything from raw commodities to advanced computer chips.

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  • Each of these companies will look at its inventories to gauge their success. Rising inventories likely means slowing sales, and in turn, slowing revenues. Declining inventories can signal the opposite, that sales are on the rise, and maybe even that raising prices might be a good idea.

    Networking equipment manufacturer Cisco Systems (CSCO) has been challenged with its inventories in recent quarters.

    Customers have been the ones to increase their inventories in advance of increased demand. But that’s delaying the shipment of new networking equipment.

    Given the expected rise in demand for networking products, however, shares could be poised for above-average returns in the quarters ahead as the inventory excess gets worked through.

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  • Action to take: With shares trading at 15 times earnings, and as an industry leader, Cisco looks like a reasonable buy for long-term investors here or on any drop lower.

    At current prices, shares also pay a 3.1 percent dividend.

    For traders, shares likely have more upside in the coming months. The July $55 calls, last trading for about $1.05, can likely see high double-digit returns before expiration.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.


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