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Will Cisco CEO Ignite Further Stock Gains?

Friday, 5 Nov 2010 | 5:35 PM ET

With stocks at 2010 highs, the bulls may have everything to lose next week when Cisco reports.

CEO John Chambers often moves markets with his company largely seen as a bellwether for technology and sometimes for the broad market.

That’s because the routers and switches sold by Cisco are a key component of technology infrastructure making it a critical barometer for the Street. In fact Cisco wields so much influence, market pros not only parse though what John Chambers says -- but the tone he uses when saying it.

AP

And its November 10th earnings couldn’t be more important for bulls considering last earnings Chambers spooked Wall Street with his cautious comments.

As you probably remember, that’s when Chambers used language such as ‘unusual uncertainty' – a term all the more worrisome to investors because Chambers is typically upbeat.

What should you expect?

On average analysts say long-term demand looks healthy as more consumers go on the Internet, not just to email or browse websites but also to download movies and songs, and chat online --all activities that require advanced network equipment.

As a result, investors are largely expecting Cisco to deliver a strong set of results and an upbeat outlook. That should be good for the market broadly - but will investors feel the same affection for Cisco shares.

That's unclear.

Shares have languished over the past 3 months with investors unsure if Cisco's strongest growth days are over.

On Friday shares closed around Thursday at $24.26, slightly above 13 times earnings forecasts for this fiscal year, but lower than its historic average of close to 19 times earnings and its peers' average multiple of above 25.

What’s the trade?

I expect we see a slight beat and an in-line forecast, says Gleacher analyst Mark McKechnie. And the resulting move in Cisco should ripple across the chip sector.

Valuations are fair, says Guy Adami. I think if the quarter is even halfway decent the stock trades above $27.

Take Your Position: Cisco
Mark McKechnie, a telecom analyst at Gleacher & Company, tells CNBC why he has a buy on Cisco.

* For more analysis from Mark McKechnie watch the video above.



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Trader disclosure: On November 5th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Weiss owns (MEE), (MS), (QCOM), (FWLT), (UAL), (CSX), (UPS); Terranova owns (APA), (AAPL), (AXP), (C), (GOOG), (GS), (FCX), (HES), (IBM), (MCD), (NKE), (ORCL), (PCP), (PEP), (UPL), (VRTS), (XBI); Terranova owns (FCX) puts; Terranova owns (FFIV) puts; Terranova owns (SLB) puts; Terranova owns (DIS), (OIH), (OXY), (PFE), (POT); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)

For Joe Terranova:
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For Mark Mckechnie
***No Disclosures***

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