Value-oriented Covestor manager Yinglan Tan buys Cisco Systems (CSCO, AAPL, JNJ)

Covestor model manager Yinglan Tan is the author of the book The Way of the VC – Top Venture Capitalists On Your Board and he is currently an Adjunct Professor living in Singapore.

For serious money, Yinglan believes that certain Asian venture-backed equities are solid investment vehicles to leverage on the growth opportunities in Asia. For his portfolio, he holds on average 10 to 20 securities and will not likely put more than 20% into any one holding. His buying frequency is fairly low, preferring to patiently wait for attractive prices and then hold the security. He will also conduct a monthly evaluation for tactical opportunities, but typically will rebalance quarterly.

Tan manages Covestor’s Venture Capital Aggressive portfolio which

Invests in the top venture-backed equities with predictable earnings and long-term growth. Allocates a significant portion of its capital to a single trade.

Current top positions include the Nuveen Multi-Strategy Income and Growth Fund (NYSE: JPC), Kinder Morgan Energy Partners LP (NYSE: KMP) and Johnson & Johnson (NYSE: JNJ). On April 29, Tan added Cisco Systems, Inc. (NASDAQ: CSCO) to the portfolio. CSCO designs, manufactures, sells and services IP-based networking and other products related to the communications and IT industry.

CSCO has had a tumultuous few months, with the company reporting weak earnings in February, prompting CEO John Chambers to write an internal email signalling the need for change, and then ultimately the decision to kill off the Flip video recorder.

“It seemed like a great marriage at the time,” says Kartik Hosanagar, Wharton professor of information and operations management. Cisco — which paid $590 million to acquire Flip from Pure Play Technologies, the startup that launched the one-trick device in 2006 — “was going after the consumer,” Hosanagar says. “It bet big that this would be a good opportunity.”

According to Wharton management professor David Hsu, the enormous success of Apple (Nasdaq: AAPL) has led many technology companies to look to the consumer market for growth. These companies hope that by focusing on consumer-oriented products, they can acquire the knowledge and experience necessary to produce huge hits like the iPod and iPhone.

“Cisco decided there really is no market in the standalone video device today,” says Eric Clemons, Wharton professor of operations and information management, noting that consumers who want to record video will use a high-quality digital model or catch spur-of-the moment videos on their smartphones.

Meanwhile, Cisco is struggling in its much larger enterprise business. In addition to Flip and Linksys, the company’s consumer strategy included acquiring set-top box manufacturer Scientific-Atlanta and Umi, a digital teleconferencing system. Even so, consumer products account for only 2% to 4% of Cisco’s overall revenues, and those sales dropped 15% in the second quarter. Overall, net income in the quarter was down 18% from the same period in 2010. In a statement released earlier this year Cisco, CEO John Chambers said the company faces “air pockets” because of big declines in orders by government agencies and cable operators.


“Taking Advantage of the Recent Drop in Cisco Shares” Rougemont. Seeking Alpha, 2/14.

“Cisco chief John Chambers vows to restore “flawed” company” Reuters, 4/6.

“The Flap over Cisco’s Flip: Why the company Killed off a Popular Product” Knowledge@Wharton. The Motley Fool, 5/1.