Part 5

Keysight Technologies Inc. (KEYS)

Company Background

Keysight Technologies, is an American company that manufactures electronics test and measurement equipment and software. The company works with manufacturers, service providers, and enterprises worldwide providing solutions to help accelerate innovation, connect and secure the world and is also a leader in the industry that it operates in. One of the key distinctive characteristics that makes the company uniquely positioned to generate consistent double-digit annual growth in the coming years is the fact that Keysight Technologies provides a highly-specialized, professional service and products across a wide range of industries and works with the leaders in these respective industries. Keysight’s portfolio of products and solutions is truly impressive as it spans across very attractive and high-growth markets like: 5G, Cloud storage, Internet of Things, Data Center Infrastructure, Design and Automation, Connected Car, Energy Ecosystem, High-Speed Digital System Design, Network Security, RF + Microwave, SDN + NFV +Virtualization, Network Test, Network Visibility, Manufacturing Test, Measurement Fundamentals. This has established Keysight Technologies as a trusted and reliable partner for companies and governments around the world. Technological innovation has been one of the most important aspects of our evolution as a society and civilization in recent years and its importance will only continue to grow in the years to come. From the company standpoint the versatility that Keysight provides to key industries like Aerospace & Defense, Automotive & Energy, Communications, Education, Enterprise, Government, Semiconductor, Service Providers ensures stable ,well-balanced and strongly diversified revenue streams for the foreseeable future.

Current Position – Financial Performance and Future Growth Prospects

With an impressive clientele including Alphabet, Amazon, Boeing, Facebook, MediaTek, Microsoft, Nvidia, Samsung, TSMC, and Tesla, to mention just a few the company is indirectly operating on all fronts of technological innovation. Moreover, the company has a strong pipeline of new business bookings for 2020 and beyond, which further shows that Keysight’s products and services are highly sought after. Quite often, we at DowExperts receive questions about which stock is the best Technological, 5G, VR, AR, Internet, AI stock out there and here with Keysight Technologies you have a perfectly balanced access to all of these high-growth markets at an attractive valuation.

What’s more important is that Keysight is operating behind the curtains of innovation as a contractor, rather than a first line innovation builder. Why is that important for you as an investor? Well, because in most instances every new technological era is associated with high fixed starting costs, risk of full-scale adoption etc. which usually makes it rather difficult for those engaged in this initial infrastructure building process. However, Keysight helps these new technologies to be pushed forward by testing different processes, solutions and concepts in the lab following its clients’ needs and then provides them with the ready-to-use solution that the clients were looking for. The important thing to note here is that, Keysight’s revenues and earnings don’t depend on the actual success of the implementation of these new innovative solutions that their clients needed or on the costs and risks associated with that implementation.

In other words, Keysight is sitting in a very favorable position from a risk-reward perspective when it comes to these new technologies and their future development. Let’s look at an example in order to help you visualize this in a better way.

Alphabet could be working on a new piece of a ground-breaking technology that is expected to change the business world entirely in the coming years. Alphabet then decides to higher Keysight Technologies to test and further perfect the functionality of this technology and Keysight receives a hefty compensation for its services. It then provides Alphabet with whatever it is that the company needed and from that point on it is up to Alphabet to find the right applications and build the right infrastructure around this new piece of technology, so that it could have the positive impact that Alphabet initially anticipated. As you can understand, there are many different risks and unknowns that Alphabet would be undertaking in this example, whereas Keysight Technologies would have already received its compensation for its services and would have already shifted its focus on the next project. We at DowExperts believe that this creates a very powerful secular growth trend for the company and puts it in the perfect position to benefit from the increased competition in all of these high-growth industries for the years to come.

We all know that when the mass adoption of a new technology is just around the corner, companies go crazy about solidifying their competitive and possible leading position in the respective industry. As a result of that, we usually see a significant increase in their R&D budgets, which leads to higher revenues and earnings for companies like Keysight Technologies.

We at DowExperts believe that Keysight’s robust 5G portfolio is expected to be a solid growth driver going forward. The company’s 5G product design validation solutions ranging from Layer 1 to 7 enable telecom and semiconductor companies to accelerate their 5G initiatives. Further, Keysight’s 5G network emulation solutions facilitate end-to-end processes from development to deployment, accelerating the 5G device architecture. The solutions offer cost-efficient test methods with high adaptability and control functionality, which in turn reduces time-to-market. Keysight Technologies has seen a CAGR of more than 60% in order growth in 5G domain throughout the last 3 years. Intensive infrastructure investments in 5G deployment and positive trial testing results hold promise. In fact, per ResearchAndMarkets data, global 5G market is expected to reach $277 billion by 2025, witnessing a CAGR of around 111% between 2019 and 2025.

Furthermore, ongoing technical advancement in mobile communications, semiconductors and automotive markets are likely to drive long-term growth. A rising demand for power management applications is considered to also be a key catalyst for the company. Continuous efforts towards the ongoing modification of the Internet infrastructure, evolution of smart cars & autonomous-driving vehicles are other positive growth drivers. Lastly, the medical devices and pharmaceutical markets hold immense potential for a substantial increase in demand for electronics testing of specialized equipment.

Technical Analysis

(Last recommended it @103, it went up to $127 in 4 weeks = 23.3% return)

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 6 months taking the price from the March 23rd lows of around $78 to the highs at $106, reached in the beginning of September. Since then, we have seen a volatile correction that initially took the price down with over 18% in less than 2 weeks, before it quickly recovered back to the $106 highs where we recommended it back in October. The stock has had an amazing run throughout the last 6-8 weeks and is currently sitting at the $124 mark after experiencing a slight correction from the all-time highs at $127. This correction was anticipated by as nothing can go up or down in a straight line forever and after the strong bullish rally in the past 6 weeks it was more than normal for us to see a downward corrective movement. While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, the upcoming presidential elections, the economic recovery etc. – and that we could be in for a sideways and choppy price action in the coming months, we see the winners continuing to win. We remain cautiously bullish on the KEYS’s stock and believe that any profit-taking corrections would give us a great opportunity to buy the stock at a good discount. This, in turn would give us a chance to maximize our profits to the upside, once the stock resumes its strong uptrend. Furthermore, some of the technical indicators that we are monitoring closely (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are currently showing exhaustion of the recent up move and are signaling that a potential counter-trend move might occur very soon.

We would wait for a short-term pullback towards the $120 mark and start buying just above the support at $116. Should the price drop further, we would be interested in adding more to our buy positions at the $109 and $102 levels, which would improve our average cost basis. Our first take-profit target would be set at $145, followed by the next target at $165 where we would be fully cashing in our profits.

Additionally, we should always remember that the XLC and XLK share a very strong 10-year positive correlation of 90%, which following DowExpert’s investment philosophy means that if one of the two ETFs issues a signal there is a 90% probability that the other ETF will follow suit. Thus, we believe that the broad economic weakness in the US and the uncertainty surrounding the process of recovering to pre-COVID-19 levels in terms of productivity, job creation, consumer spending and inflation, will be the driving fundamental forces behind the expected short-term market declines in the coming weeks and months. As a result of that, we expect Keysight’s stock to move lower in the coming weeks with an initial downside target at the $116.50 level and a secondary target at $110 before resuming its stronger long-term uptrend.

Take Two Interactive Software (TTWO)

(Last recommended @ 156, it went up to 203.90 = 30.7% return in 4 weeks)

Company Background

Based in New York City, Take Two Interactive Software is a leading developer and publisher of video games.

Take Two’s games can be played on a wide range of different devices including video consoles, personal computers, mobile devices and tablets. The company earns the largest portion of its revenues from the sale of disk-based video game products (known as packaged goods) and downloadable contents (DLCs), but usually smaller segments like subscription, micro-transactions and advertising have seen a major growth improvement recently.

2K’s internally owned and published franchises include BioShock, Mafia, XCOM and Sid Meier’s Civilization. It also publishes externally developed franchises such as Borderlands. Moreover, 2K’s realistic sports simulation titles include NBA 2K series, the WWE 2K series, and the Golf Club.

Take Two’s Private Division is the publisher of Kerbal Space Program.

Social Point develops and publishes popular free-to-play mobile games that include Dragon City and Monster Legends.

The company sells games both physically and digitally through direct relationships with large retail customers and third-party distributors. The most successful customers that Take-Two works with are GameStop, Microsoft, Sony, Steam and Wal-Mart. In fiscal 2020, the five largest customers accounted for 71.5% of net revenues, with Sony and Microsoft each accounting for more than 10% of net revenues.

Current position – Financial Performance and Future Growth Prospects

It is important to note that Take Two’s growth is primarily driven by its popular franchises — Grand Theft Auto (GTA) and Red Dead Redemption. Notably, GTA generated 23% of net revenues in fiscal 2020. However, at the same time this could also prove to be one of the biggest risks for the company, as when you rely to that extent on a single product, you become dependent on the success of that individual product. Sid Meier’s Civilization VI also outperformed management’s expectation owing to its expansion packs and the popularity of the Nintendo Switch skew. The company’s portfolio strength and robust slate of releases, including Borderlands 3, Ancestors: The Humankind Odyssey and The Outer Worlds, are key catalysts for the long haul.

The growing traction in NBA franchise bodes well for the company. Take Two expects NBA 2K net bookings to continue the momentum owing to strong growth in recurrent consumer spending, which increased 29% year over year in fiscal 2020. Meanwhile, NBA 2K Online was the most played PC game in China and the franchise has about 49 million registered users, which is expected to drive recurrent consumer spending. Moreover, the NBA 2K League started its 2020 regular season on May 5, 2020 with at least six weeks of remote gameplay after coronavirus lockdown. This is expected to further boost top-line growth in the near term.

Take Two reported net revenues of $3.08 billion for fiscal 2020. The U.S. accounted for 57% of revenues, while the rest came from International operations. Channel-wise, digital online contributed 77% to net revenues, while the rest came from Physical retail and other segment. The main brands and labels that the company uses to develop and publish its games are Rockstar Games, 2K, Private Division and Social Point.

Rockstar Games is probably the real “rockstar” of them all as it publishes Grand Theft Auto (GTA) and Red Dead Redemption among others.

On Feb 7, 2020 Take Two’s Grand Theft Auto V became the best-selling game of the past decade while Red Dead Redemption 2 became the best-selling game in the past four years. Both the games sold more than 150 million units worldwide combined since their launch.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 6 months taking the price from the March 23rd lows of around $100 to the highs at $203.50, thus representing an over 100% increase in just few months. The stock recorded multiple all-time high readings throughout the Fall as the initial $180 level was reached in the beginning of August. What followed was a month of sideways price action and a volatile correction taking the price down with over 15% in less than 2 months. In November, the price started recovering its prior uptrend after rebounding from the strong support area around $150. Once the $180 all-time high level was broken, the stock continued to gain into uncharted territory reaching the $203.50 level in December.

We would wait for a short-term pullback towards the $179 mark and start buying just above the support at $177. Should the price drop further, we would be interested in adding more to our buy positions at the $160 and $147 levels, which would improve our average cost basis. Our first take-profit target would be set at $225, followed by the next target at $240 where we would be fully cashing in our profits.

The stock is currently sitting at the $194 mark after the stock got rejected by the strong psychological, horizontal and all-time high resistance at around $200. The initial downward correction was anticipated as nothing can go up or down in a straight line forever and after the strong bullish rally in the last 6 weeks it was more than normal to see a downward corrective movement. While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, the effect of the outcome of the US presidential elections, the economic recovery, Brexit etc. – and that we could be in for a sideways and choppy price action in the coming months, we see the winners continuing to win. We are cautiously bearish on the TTWO’s stock in the short-term and believe that any profit-taking corrections would give us a great opportunity to buy the stock at a good discount. This, in turn would give us a chance to maximize our profits to the upside, once the stock resumes its strong uptrend. Furthermore, some of the technical indicators that we are monitoring closely (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are currently showing that the price might not have enough steam to break the current diagonal trendline resistances that it faces. The exhaustion of the recent up move could be signaling that a potential short-term decline could be just around the corner. Thus, we are not advising our followers to go ahead and start buying the stock right now at its current highs, but to rather wait for a better entry point that we believe will present itself in the coming days and weeks.

Additionally, we should always remember that the XLC and XLK share a very strong 10-year positive correlation of 90%, which following DowExpert’s investment philosophy means that if one of the two ETFs issues a signal there is a 90% probability that the other ETF will follow suit. Thus, we believe that the broad economic weakness in the US and the uncertainty surrounding the process of recovering to pre-COVID-19 levels in terms of productivity, job creation, consumer spending and inflation, will be the driving fundamental forces behind the expected short-term market declines in the coming days and weeks. As a result of that, we expect TTWO’s stock to move lower in the coming weeks with an initial downside target at the $178 level and a secondary target at $160 before resuming its stronger long-term uptrend. This should be treated as a great long-term buying opportunity for our followers.

We at Dow Experts enjoy analyzing the market and helping our followers maximize their profitability by following our trading and investing ideas, which are always supported by our rational investment approach.



Sincerely,

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