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ANALYST WATCH: Take analysts&#039 ratings with grain of salt

You can search long and hard through the annals of information technology investing and you'll never find a stock that's consistently produced the outstanding returns of a Cisco Systems (Nasdaq: CSCO). It has gotten to the point where investors have become numb to its excellence.

In its first quarter, Cisco slipped past analysts' estimates, earning $837 million, or 24 cents a share, on sales of $3.88 billion.

Have an opinion on this?

That Cisco beat the Street number this quarter is hardly exciting considering Cisco has either met or topped analysts' earning estimates in each of its 39 quarters as a publicly traded company.

That's almost 10 years of beating the odds. You'd figure at least once or twice any company would miss by a penny or two because of an unusually high tax rate or some type of manufacturing snag.

Not Cisco.

Since its initial public offering in 1990, Cisco has split its stock 2-for-1 on six different occasions and 3-for-2 twice. Trading at around $83 a share Friday, it's quite possible Cisco may split before year's end.

Cisco a sell?

But that performance, that domination, hasn't impressed at least one analyst.

Rick Berry, an analyst at J.P. Turner in Atlanta, actually has Cisco rated a "sell" and has since June 18, according to First Call. That's right. He's been advising clients to unload Cisco at a time that it's posting 49 percent year-over-year revenue growth. Berry is primarily a technical analyst.

Repeated attempts to contact Berry for comment were unsuccessful.

Perhaps he bought into unfounded rumors that Cisco would preannounce lower-than-expected earnings this quarter due to increased corporate spending on Y2K remedies.

George Hunt, an analyst at Wachovia Securities, called the "sell" recommendation a bizarre anomaly.

"I don't know what he's thinking, but I hope he's wrong," Hunt said.

In the first quarter, Cisco reported gross profit margins of 64.8 percent, down from 65.5 percent in the year-ago quarter but up slightly from the 64.7 percent it recorded in the fourth quarter.

Net margins were 21.6 percent and it exited the quarter with $1.8 billion in cash on hand. Meanwhile, it acquires about two companies a month and continues to do about $37 million in sales a day, or roughly 83 percent of its total sales, online.

Maybe it's a valuation concern, but one has to wonder how anyone could not have a "buy" or "strong buy" recommendation on this stock.

Other questionable calls

The "sell" call on Cisco, admittedly, is rather odd. But there are other curious recommendations floating around out there.

Microsoft Corp. (Nasdaq: MSFT), which might rival Cisco for honors on the list of incredible technology stocks in the past 10 years, is rated a "hold" by three of the 36 analysts tracking it.

Sure, some analysts might be worried about the fallout from last week's decision from federal judge Thomas Penfield Jackson that Microsoft is in fact a monopoly.

Even though some pundits were predicting a collapse in Microsoft shares, it never happened. And regardless of whatever remedies or penalties Microsoft might endure sometime next year, is Microsoft's business model or market share going to dissolve overnight?

Qualcomm Inc. (Nasdaq: QCOM), which is up more than 1,000 percent this year and recently announced a 4-for-1 split, is rated a "hold" by four of the 19 analysts tracking it.

Intel Corp. (Nasdaq: INTC) is a "hold" according to six of the 38 analysts tracking its shares. Even Lucent Technologies Inc. (NYSE: LU), which is riding side-by-side with Cisco in the booming network-equipment business, is rated a "hold" by eight of the 36 analysts following it.

Yet, Musicmaker.com Inc. (Nasdaq: HITS), which just announced a third-quarter loss of $8.2 million, or 29 cents a share, on sales of only $190,000, is rated a "strong buy" by both the analysts following it. It's no coincidence both analysts work for the firms that were the underwriters for the Musicmaker.com IPO.