This week has been dominated economically by the news out of China. The kind of volatility that we have seen there has been unprecedented by the impact on markets in the US. There are plenty of other countries that have gone through ups and downs (Argentina for example), but rarely have we seen the impact on the US Stock Markets that we have here. For Sonoma County and the rest of the North Bay, this could have a separate impact. There has been some interest in investing in the Wine Business by interests in China. I would expect to see a pull back in that interest. Not completely, but people are likely to stick to their knitting in this kind of climate. Wineries and Vineyards are probably not going to see as many Asian buyers as they have in the recent past.
So, the only other thing I can say about this is that this is a great chance to ensure that you have diversity in your portfolio. You probably lost some money on the market declines, but this presents an opportunity. Stock prices have corrected and some stocks that you wanted to buy are probably much more reasonably priced than they were two weeks ago. Remember Buy Low and Sell High! If you bought at the recent peaks, you may wish to think about what a real sell price might be on the downside. 25 – 30 percent loss is probably appropriate.
This leads into my review of Keysight’s Q3 earnings from last week. Note they are not using the Calendar Year as their Fiscal Year and that is why they are reporting Q3 now. The quarter itself was solid as Keysight reported revenue of $665M and profit of 41 cents per share (GAAP). These numbers are down year over year around 12% and in itself should be a cause for concern. However, the business is solidly profitable and as long as this is near a bottom of revenue there is no concern on the downside for the near term future. The company also announced that it closed its purchase of Anrite. This will help expand the presence of Keysight in the Wireless Business. There will be an ongoing process of creating “synergies”. This means that duplicated positions will be slowly eliminated. There will be cost savings derived from that and in the end the total company should be able to operate the overall business at less money than as two companies. The caution on this is that sometimes those savings kill the business of the acquired company.
So, we have a stable company that has a relatively flat to slightly down business. And that is the challenge. Keysight states that its Total Available Market (TAM) is growing at about 2% a year. That does not allow for the business to grow rapidly or create a lot of new profit centers. This of Proctor and Gamble and less about Apple – even though Keysight is a technology company. That means that the Price to Earnings (P/E) ratio for Keysight will never hit 30 or 40, but instead it will be in the teens like a more stable company. This will limit the upside of the Stock Price.
Have a great day!
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