This week’s Growth and Income Stocks are Cisco Systems (CSCO) and Rayonier...

    This week’s Growth and Income Stocks are Cisco Systems (CSCO) and Rayonier Inc. (RYN).

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    Cisco Systems (CSCO Free Report) has been shifting away from its legacy switching and routing business, and has been more focused on areas of high growth within the technology realm.  This includes the cloud, the internet of things (IoT), cybersecurity, and enterprise collaboration.  While they have not abandoned their legacy items, as they still have a solid revenue stream coming in from this segment, management has found that these new growth areas have begun to help its reoccurring revenues.  

    The success of this new focus was evident in their last quarter’s earnings announcement where these reoccurring revenues, in the form of subscription products and software sales accounted for almost 1/3 of total revenues.  Specifically, subscription product revenues increased to 12% of sales which was an over +100% increase from just two years ago.  Currently, management’s goal is to have reoccurring revenues to account for +37% of total sales, and for subscriptions to reach 20% of product sales by 2020.  This goal seems very obtainable given their current course, and recent success.  

    The company is also branching out into cybersecurity, another high growth tech area, and they recently announced a partnership with INTERPOL share threat intelligence.  This is the initial stage for both of these organizations to fight cybercrime.  Further, Cisco recently relaunched its smart city platform. According to Larry Payne, SVP of Cisco, “It’s a solution that provides connectivity as well as analytics and security to multiple devices, such as sensors, streetlights, and video cameras.”  This platform is currently being used by 34 cities, including Las Vegas Nevada.  

    One of the newest, and more interesting ways Cisco is moving into the internet of things (IoT) has been their recent collaboration with IOTA, “an open-source distributed ledger (cryptocurrency) focused on providing secure communications and payments between machines on the Internet of Things.”  This new system is expected to be more efficient and easier to use than the common blockchain technology.  

    This overall shift by the company has not gone unnoticed by analysts, as they have increased price targets, and revenue expectations since the last earnings announcement.  As you can see below, the stock price and future earnings estimates have jumped since management’s shift to more high growth technology areas.

    Cisco Systems, Inc. Price and Consensus

    Cisco Systems, Inc. Price and Consensus | Cisco Systems, Inc. Quote

    Lastly, the company pays a very nice +3.09% annual dividend.  Moreover, the recent corporate tax cut is expected to result in more share repurchases and dividend hikes in 2018.  While this is not confirmed, many are expecting management to return these savings to its shareholders.  

    Rayonier Inc (RYN Free Report)

    The sustained housing market, the necessary rebuilds after the hurricanes, and the potential infrastructure bill in early 2018 are the main drivers behind Rayonier’s recent uptick, and bolstered future expectations.  Rayonier is a timberland real estate investment trust with assets located in some of the most productive timber growing regions in both the U.S. and New Zealand. Rayonier owns, leases or manages acres of timberlands located in the U.S. South, U.S. Pacific Northwest and New Zealand.

    In mid-November, the Commerce Department reported that housing starts rose by +13.7% to a seasonally adjusted annual rate of 1.29 million units.  This marked the highest level since October of 2016.  The areas impacted by the hurricanes were up even higher, +17.2%, with single family construction improving by +16.6%, the highest level since 2007.  Moreover, building permits increased by +5.9% to an annual rate of 1.297 million units in October.  Specifically, single family permits rose by +1.9% while multi-family homes jumped up +13.9%.  

    During this time, Rayonier saw significant increases in their harvesting volumes in all three of their timberlands; U.S. South +24%, U.S. Pacific Northwest +5%, and New Zealand +40%.  This equated in improved sales in all three areas; U.S. South +15%, U.S. Pacific Northwest +16%, and New Zealand +66% when compared to the year ago quarter.  While sales and harvesting volumes increased, management was able to decrease both corporate and operating expenses.

    Another area of growth for the company is in the form of exports.  China has seen its timber supply deficit increase as of late, and Rayonier’s exports from the U.S. South to both China and India have grown by 8 times since 2012, and are expected to continue to grow through 2018.  

    Moreover, Rayonier continues to prudently acquire more timberland, and has average 8 transactions annually adding about 105,000 acres each year to their portfolio.  This process is expected to continue through 2018. Lastly, the company pays out a nice 3.25% annual dividend with the next record date payment on 12-14.

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