Part 1

After analyzing the performance of the ETF pair (XLC-XLK), we have picked the two best stocks from each ETF that we believe have the chance for performing well in the near future and that would give a chance for our followers to maximize their profitability.

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

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. The stock is currently sitting at the $106 mark after rebounding from the strong diagonal trendline support at $90 and the horizontal support at $94.80. 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 months it was more than normal for us to see this 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 will start buying aggressively at the key support mark at $100 where lots of buying pressure is expected. In case the price breaks the support and drops further, we will be looking to buy more of the KEYS at the next key support level at $94.80 where further buying activity is expected to take place and the price is likely to reverse back to the upside from either of these two levels. Our first profit target is set at $119, followed by the next target at $131, where we will 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 days and weeks. As a result of that, we expect Keysight’s stock to move lower in the coming weeks with an initial downside target at the $100 level and a secondary target at $94.80 before resuming its stronger long-term uptrend and moving back up to the $119 and $131 mark.

Electronic Arts Inc. (EA)

Company Background

Headquartered in Redwood City, CA, Electronic Arts is a leading developer, marketer, publisher and distributor of interactive games (video game software and content). It is the second-largest gaming company in the Americas and Europe by revenue and market capitalization after Activision Blizzard and ahead of Take-Two Interactive, CD Projekt, and Ubisoft. The company is enjoying some nice tailwinds. Its video games are seeing record high engagement, and the gaming sector overall is reporting record sales as consumers flock to digital entertainment during the pandemic. The company’s strong release slate, full of new installments of popular franchises like FIFA 21 and Madden, is driving growth.

The company develops and publishes games and services across various genres, such as sports, first-person shooter, action, role-playing, and simulation primarily under the Battlefield, The Sims, Apex Legends, Need for Speed, and Plants v. Zombies brands; and license games from others, including FIFA, Madden NFL, and Star Wars brands.

Current position – Financial Performance and Future Growth Prospects

Electronic Arts, popularly known as EA, distributes its gaming content and services through multiple distribution channels as well as directly to consumers (online and wirelessly) through its online portals — Origin and Play4Free.

EA games can be played on video consoles, personal computers, mobile devices, tablets and electronic readers. The company generates revenues from the sale of disk-based video game products (known s packaged goods), downloadable contents (DLCs), subscription, micro-transactions and advertising.

EA has been the primary beneficiary of the ongoing shift from physical to digital versions of video games. Notably, contribution of the digital business to EA’s revenues increased from 57% in fiscal 2017 to 67% in fiscal 2018 and 75% in fiscal 2019. The company expects the digital business to continue to grow primarily on the back of live services and a strong mobile business. Moreover, compared with the physical platform, digital games are more profitable due to minimum packaging cost. In addition, the company’s freemium and extra content services are generating significant market traction, which is driving the top line.

The financial performance of EA during the fiscal 2021 first quarter (ended June 30) was absolutely spectacular, as net revenue increased 21% to $1.46 billion. During the investor call, COO and CFO Blake Jorgensen said the company added “tens of millions of new players” to its network and launched new releases during the quarter. As a result, Electronic Arts raised its full-year net revenue and net bookings guidance to $5.625 billion and $5.950 billion, respectively.

Electronic Arts Inc. has always been a company that focuses a great deal of its attention towards finding ways to accelerate its growth numbers. The best and most efficient way of doing that is by improving the gameplay of each individual game they make and to also increase they product offering, so that they could appeal to a larger audience. As the variety of live entertainment options such as live sports and concerts remain limited due to COVID-19, people will look to video games as an alternative. Jorgensen noted in the first-quarter earnings release, “Our Stay Home, Play Together initiatives have been a strong tailwind for the business, as players look for safe and social entertainment in these difficult times.”

EA’s latest battle royale (BR) game — Apex Legends — is an instant hit. The game has smashed the records of Epic Game’s Fortnite in this genre. The company is in talks with Tencent to bring the game to China. Notably, EA lacks significant presence in China apart from FIFA and a few mobile games. Thus, Apex Legends will boost EA’s footprint in China’s PC-gaming market, which is a positive.

EA’s strong liquidity and cash flow-generating ability make the stock attractive to investors. As of Jun 30, 2020, the company had $5.9 billion in cash and short-term investments compared with $5.7 billion as of Mar 31, 2020. In comparison, EA had $1 billion senior notes as of Jun 30, 2020, with $600 million maturing in March 2021 and $400 million due in 2026.

With a PE of just 19, Electronic Arts boasts an enticingly low valuation — especially compared to comparable video game companies like Activision Blizzard, which trades at 34 times earnings. As mentioned above, Electronic Arts will likelycontinue to benefit from elevated demand for stay-at-home entertainment amid the coronavirus pandemic, as well as from its partnership with Valve to release titles on the Steam PC gaming marketplace.

Electronic Arts’ net sales jumped 20.7% to $1.46 billion in the fiscal first quarter. And management is guiding for full-year revenue of $5.63 billion — representing a 1.6% gain over the prior-year period. Electronic Arts is mature, and investors shouldn’t expect breakneck revenue growth going forward. But the company’s consistent profits and low valuation make it an excellent way to bet on a strong industry at an affordable price.

Technical Analysis

The stock is currently sitting at the $131.35 mark after rebounding from the strong diagonal and horizontal trendline support at $124. The initial downward correction was anticipated back in September as nothing can go up or down in a straight line forever and after the strong 5-month long bullish rally following the horrendous price declines in March, it was more than normal for us to see that 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, our analysis shows that the winners will continue to win. We are strongly bullish on the EA’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 that the price might not have enough steam to break the current diagonal trendline resistances that it faces on its first attempt. 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 as the stock is facing a serious resistance at its current highs. Instead we believe that the but to rather wait for a better entry point that we believe will present itself in the coming days and weeks.

We will start buying aggressively at the key support mark at $124.50 where lots of buying pressure is expected. In case the price breaks the support and drops further, we will be looking to buy more of the EA’s stock at the next key support level at $113 where further buying activity is expected to take place and the price is likely to reverse back to the upside from either of these two levels. Our first profit target is set at $150, followed by the next target at $163, where we will 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 days and weeks. As a result of that, we expect EA’ s stock to move slightly lower in the coming weeks with an initial downside target at the $124 level and a secondary target at $112 before resuming its stronger long-term uptrend. However, considering the solid fundamentals, dominant market position, and a great market edge this should be treated as a great long-term buying opportunity by 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,

This image has an empty alt attribute; its file name is logo.svg

Add a comment