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STOCK GAINS USED to come easy for Cisco Systems. When strong demand for computer networking equipment nearly tripled its sales during the three fiscal years ended July 2000, Cisco's shares multiplied more than seven times in value. A bubble in technology stocks deflated over the following year, and shares lost two-thirds of their value. Gains since then have been harder-fought.

Over its past seven fiscal years Cisco has bought more than 50 companies, nearly doubling its sales. It has also spent a whopping $55 billion more than a third of its present market value to repurchase its shares. Some of that has merely offset stock issuances, but the share count has fallen 17%. Earnings per share have more than tripled. Yet for all that, the stock price during these past seven years has increased by just 24%. Over the past five years, its price/earnings ratio has shrunk by half.

Perhaps investors are worried over slowing equipment demand from struggling banks or consolidating phone carriers. Maybe they're eyeing aggressively priced equipment sold by competitors like Juniper Networks, Riverbed Technology and F5 Networks. They might just be concerned that Cisco is too big to grow.

Recently, though, it has been growing well enough. On Aug. 5 Cisco reported that sales increased 10% in its fourth quarter and 13% for the year. In the U.S., healthy demand from corporate customers made up for weak government orders. Sales to China and India surged 30% and 20%, respectively, for the quarter. Adjusted earnings per share rose 11% for the quarter and 16% for the year. Product backlog swelled 22% from last year to a record $4.8 billion.

Cisco Chief Executive John Chambers is optimistic. He expects a recovery in technology spending in the first half of calendar 2009, is targeting long-term yearly sales growth of 12% to 17%, and says the world is entering the next phase of the Internet, which will center on collaborative technologies. Accordingly, Cisco has bought its way far beyond hardware in recent years. In 2007, for example, it purchased online conference specialist WebEx Communications and Five Across, which adds social networking features to companies' web sites.

Shares of Cisco seem reasonably priced at just under 16 times adjusted earnings for its recently completed fiscal 2008, vs. about 18 times trailing 12-month operating earnings for the S&P 500 index. Analysts foresee Cisco's profits increasing 8% and 14% in fiscal 2009 and 2010, respectively. If the growth doesn't turn up as hoped, the company can still keep plugging away at its stock. It clears more than $2 a share in free cash each year, some 8% of its market value.

That earned Cisco a spot on a recent screen for companies with low market values relative to their free cash flow. Have a look at seven other companies that made the cut if you like, or run the search anytime using SmartMoney's stock screener and the full list of search criteria.

Also See:
8 Stocks With Enviable Profitability
8 Stocks With Accelerating Sales Growth
8 Stocks Fit for Contrarian Investors

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Data as of August 11, 2008.

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