After JPMorgan took Cisco Systems from their Analyst Focus List, shares of Cisco Systems traded flat or slightly lower on Monday. JPMorgan maintained its overweight as it sees a “favorable outlook”, driven by the near term rebound in Enterprise IT spend and the long-term advantages of the software-subscription business model transformation. The analysts removed Cisco from their AFL because of its “greater susceptibility” to supply headwinds in the near term. This is due to Cisco’s broad product portfolio, which limits near-term catalysts.

CSCO stock is an attractive choice because of its ability to work in the current market. Cisco is the antithesis of “conceptual” high-flying companies that are unprofitable and could be shut down by the Federal Reserve. The stock is profitable, high-quality and cash flow-generating. Stocks trade at a cheap price-to-earnings multiple. 2.5% dividend yield adds support to the stock price and rewards investors for their patience. Cisco’s exposures to increasing trends in enterprise IT spending and software are positive for the long term. 

However, as much as the stock’s character and characteristics are appealing to us, it seems prudent for us to cut our positions and preserve gains from today’s relative strength. JPMorgan was correct in assessing the absence of immediate catalysts. It is up to us how long these supply-chain headwinds continue.

CSCO wasn’t a stock we considered a buy when it plummeted to $50 after earnings. However, now that CSCO has recovered some of its losses post-earnings and is back close to its 52 week highs, we will be letting go of shares. This trim will result in a gain of about 11% for shares purchased between June 2021 and June 2021.