The Next Cisco

Sometimes Wall Street gets captivated by a business model, and everybody just goes nuts trying to find companies that fit it. When I got in the business in the early ’80s, everybody wanted to find the next Merck, which was a fabulous stock for so many years. Later, people wanted to find the next Microsoft. Then we searched for the next Amgen, and for the past few years we’ve wanted to find the next Intel. Recently we wanted to find the next WorldCom and the next America Online.

Now we have a new deity–the next Cisco. This once quiet company has become the very visible backbone to every communications network in the world. Cisco, led by John Chambers, dominates all the tough science behind the movement of information. When you think of voice, data, bandwidth, telephony and the Internet–all the buzz words behind today’s hottest stocks–you invariably come back to Cisco, which is the go-to guy behind the equipment that makes this stuff work. Dot.com companies are loaded with Cisco’s products. The company is held in awe by Silicon Valley and Wall Street for its tech expertise and its financial acumen.

But the Street, of course, is never content to buy just Cisco. Too boring, and it doesn’t generate enough excitement, let alone commission. These days brokers pitch us the next Cisco nearly every session. The IPO market, as hot as I have ever seen it, is pumped full of next Ciscos, as company after company goes public with a Cisco flavor. Some of these new issues seem to jump solely because they list Cisco as a competitor in the prospectus! Brocade, which makes fiber-channel switches–something that has the look and feel of Cisco–jumped from 19 to 116 in five weeks after coming public on the back of this buzz. Redback, a high-speed broadband IPO with enough Cisco overlap to be cast as Junior, went from 23 to 163 in two months. But none of them can touch the run of Juniper Networks, a newly minted maker of next-generation routers. A direct competitor of Cisco’s, it jumped from 34 to 162 in five days. Now we are talking certifiable Son of Cisco. Even I, skeptical of any parentage or resemblance plays, have bought a few thousand shares of this one.

Should you play the Son of Cisco game at home? I don’t think so. First, you have to be awfully nimble, because you never know when the son will turn prodigal, and most of these smaller companies are niche players battling Cisco on only one or two fronts. Second, what makes Cisco truly great is its management. These other companies are unproven. Third, only one company has ever really competed against Cisco hand to hand without getting crushed–Ascend, which just got bought by Lucent. If you insist on a Cisco relative, Lucent, an East Coast rival, might be the ticket.

Most important, though, the reason you shouldn’t hunt for the son is because the parents are doing just fine, thank you. That’s why Cisco and other deities WorldCom, Microsoft, America Online and Intel remain core holdings of Cramer Berkowitz. Sure, a Cisco Junior would be a nifty trade. But when you are investing, you stick with winners. I don’t need to go hunting for the next great networker. I already own the greatest.

James Cramer manages a hedge fund and writes for thestreet.com His fund is long LU, CSCO, AOL, MSFT, INTC and JNPR. This column should not be construed as advice to buy or sell stocks