Tuesday, January 31, 2012

CSCO: Ralph Nader and I agree

Hard for me as it is to believe, Ralph Nader, "Consumer Advocate" sometime presidential candidate and general left-loony gadfly and I agree about Cisco Systems (CSCO): John Chambers is bad for shareholders.

In an editorial for Reuters, Nader - apparently a CSCO shareholder with 18,000 shares - complains of the poor use of company cash, which has primarily gone to counteract dilution from the excessive equity compensation the CSCO management team, led by Chambers, has handed itself over the years.

Nader is arguing that with massive cash balances and $3bn a quarter in operating cashflow, the dividend at 6 cents is really insulting and represents hostility towards shareholders.

I myself have written an article detailing my own view that CSCO as a business is cheap, worth probably $30 a share, or even a bit more, but that the business carries a risk that merits the discount - "John Chambers risk" which is the risk that all of the shareholders money will be used for management compensation

While I agree with Nader that management could and should take some near term steps to enhance shareholder value, the fact is, as long as Chambers is there, the stock will price the risk of his management into the stock price

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