On the 16th of October 2008 Warren Buffet wrote an Op-Ed piece in the New York Times. It includes this section:

I’ve been buying American sto

buying viagra

cks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

On the 16th October 2008 the Dow Jones Industrial Average was at 8,451.19.

On the 6th March 2009 – 13 months ago – the Dow Jones Industrial Average was at 6,626.94.

Today the Dow Jones Industrial Average is at 10,997.35 (having been over 11,000 at the end of last week).

The Dow Jones Industrial Average is up 30.13% since the 16th October 2008 and 65.95% since the 6th March 2009.

UPDATE: The Dow Jones Industrial Average hit an all-time high of 14,164 on the 9th October 2007.

Just amazing.

He is Warren Buffett – and he can prove it.

Cisco ($CSCO) are featured in Barron’s looking at how their revenues could hit the US$100 billion level (2009 revenues US$36.1 billion). With the $CSCO share price over US

$25 – 52-week range US$16.30-26.85 – we decided to have a quick look.

Valuecruncher Interactive Analysts Report For Cisco ($CSCO)

We have the comparator group set as Hewlett-Packard ($HPQ), Lexmark ($LXK), Intermec ($IN) and Netezza ($NZ). You can change these peer companies on the site. For example you could add:

1. Microsoft ($MSFT) – Interactive Analyst Report For $MSFT
2. IBM ($IBM) – Interactive Analyst Report For $IBM
3. Hewlett-Packard ($HPQ) – Interactive Analyst Report For $HPQ
4. Juniper Networks ($JNPR) – Interactive Analyst Report For $JNPR

So what do we think?

Discounted Cash Flow Valuation

We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$27.71 for $CSCO – 6.5% above the current share price. We see $CSCO slightly undervalued at the moment. But how about compared to a peer group?

Comparison Analysis

I changed the peer group companies to $MSFT, $IBM, $HPQ and $JNPR as noted above. I am going to look at only one of the metrics we use at Valuecruncher – EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet – market capitalization doesn’t capture different capital structures when comparing companies. EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set.

On an EV/EBITDA basis $CSCO is trading at 13.6x ($CSCO is being valued at 13.6x last year’s profit at the EBITDA line). A dollar of $CSCO EBITDA is worth more a dollar of $MSFT, $IBM or $HPQ EBITDA. $CSCO’s EV/EBITDA is less than $JNPR’s but that relates to greater growth expectations and a poor 2009 financial year for $JNPR. $CSCO makes more margin at the EBITDA line than any of these comparators except $MSFT. The comparators look about right.

Summary

Based on our DCF valuation – $CSCO looks slightly undervalued. Looking at some comparators – the market is valuing $CSCO in-line with expectations – compared to the peer group. $CSCO is trading close to 52-week highs – but this looks justified.

Disclosure: no positions.