Sell Cisco, Buy Sysco
Everyone and thier grandma is pronouncing the return of data networking leviathan Cisco (CSCO), which we find premature.Cisco's push into consumer electronics/video delivery will most likely compress margins, so that stock's not for us, at least not for another 6 months.
So we're ditching routers in exchange for something more comestible -- value.
Morningstar makes the bull case for the #1 player in US food distribution:
Sysco (SYY), a provider of food-service products, has posted 19% ROICs over the past five years. The company generates impressive returns in what has traditionally been a low-margin business, using economies of scale, investments in technology, and a cadre of marketing associates armed with a portfolio of its own branded products to cement its position.The report fails to mention that Sysco is a terrific leading indicator when one is picking restaurant stocks, as Sysco is firmly embedded in the value chain of most restaurant big-names.
Sysco exhibits the very traits we look for in a wide-moat company. Being the market leader in such a highly fragmented industry allows Sysco to grab share from weaker competitors and gives it prime access to customers and acquisitions. We believe part of Sysco's success stems from its unparalleled economies of scale. The food distribution business has high fixed costs, which means that only companies capable of spreading those costs over a larger base will generate above-average returns. Finally, Sysco's investments in technology and in its distribution network have allowed it to lower its procurement and delivery costs and cement its position as the low-cost provider in the industry.
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