If you’re a Cisco (NASDAQ:CSCO) investor and have benefited from its recent run-up following the company’s better-than-expected fourth-quarter fiscal 2024 results, it may be time to look elsewhere. Currently, we think TC Energy (NYSE:TRP) — an operator of energy infrastructure in Canada, the United States, and Mexico — and AerCap Holdings (NYSE:AER) — an aviation leasing company — are more attractive buys than Cisco.

Why? Simply because the valuation and growth numbers tell us so. TC Energy and AerCap Holdings shares both posted higher revenue and operating profit growth than Cisco Systems over the last twelve months and the last quarter. In addition, they are both cheaper than Cisco Systems.

In fact, the strategy of thoughtfully shifting allocation to more attractive stocks is part of our market-beating performance of the Trefis High Quality Portfolio (HQ), which easily beat the S&P 500 in 2023. despite being significantly underweight the great 7. Full HQ Performance History Here.

Better buys than CSCO – TRP and AER stocks?

To illustrate the opportunity for TC Energy, you pay $6.70 per dollar of earnings before interest and taxes (EBIT) for TRP stock versus $13.82 for CSCO and get higher annual growth (5.5% versus 0.9%), higher quarterly growth (8.0% versus -12.8%), and higher margin expansion (0.7% versus 0.06%). Overall, you get higher revenue and higher operating income growth with TC and AerCap and pay less than you would for CSCO stock. Check out our dashboard analysis Better bets than CSCO stock

So what’s the catch?

Could Cisco Systems now buck the trend? Could the company grow its revenue and profits faster than TC Energy or AerCap Holdings in the coming quarters? Yes, it’s possible. Although Cisco’s financial performance has been weighed down by customers scaling back their orders as they focused on installing and implementing products purchased in recent quarters, there are signs that things are getting better. For example, in the fourth quarter, Cisco said its product order growth increased 14% year over year. In addition, Cisco is also doubling down on its efforts in the increasingly important area of ​​cybersecurity with the acquisition of Splunk, a software company that uses artificial intelligence to minimize the risk of cybersecurity incidents. The company has increasingly relied on a recurring revenue model with its software subscriptions and service contracts, which could lead to more stable growth. Last quarter, total recurring revenue on an annualized basis was over $29 billion.

The data below shows that both TC Energy and AerCap Holdings have outperformed Cisco Systems recently and over the past year. This could repeat itself. Related Ideas: Better Buys and Outperformers

Do you want to pay less per dollar of earnings (EBIT) than Cisco Systems to achieve more revenue and profit growth?

What about relative market returns?

There is evidence of market return as TRP stock has produced returns of 14.6%, 11.6% and 24.5% over the past 3 months, 6 months and 12 months respectively which is higher compared to 6.8%, 5.2% and -6.5% for CSCO.

What did these metrics look like a year ago – could the combination of higher valuation and lower growth at CSCO persist?

CSCO was still valued higher at $14.18 versus $5.6 at TRP, but had lower year-on-year growth (6.4% versus 11.73%), higher quarterly growth (13.53% versus 5.3%), and less favorable margin change (-0.9% versus 0.4%).

Additional reference metrics and investment theses for AerCap and TC Energy

While Cisco is set to see a turnaround after a few difficult quarters, AerCap and TC Energy are also experiencing several tailwinds. Aircraft leasing giant AerCap is likely to benefit from rising travel demand post-Covid-19. More importantly, ongoing production issues at aircraft giant Boeing have led to a shortage of commercial aircraft, causing lease rates to rise. There could be more room for growth as supply issues are likely to persist in the meantime. TC Energy, on the other hand, is focused on stability as its portfolio of contracted hydrocarbon pipelines is among the largest in North America. The company is also likely to benefit indirectly from higher electricity demand due to technology trends such as electric vehicles and artificial intelligence as natural gas – which is transported through the company’s pipelines – plays a growing role in the U.S. power generation mix. The stock’s risk-reward ratio could be attractive given its sizeable yield (over 6%) and upside potential.

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