Keysight: Semiconductor Arms Dealer or Picks and Shovel Maker, Consider KEYS

Yesterday Barron's ran an article Forget the Cool New Products; Buy the "Arms Dealers" The article recommended several of my favorite semiconductor and semiconductor capital equipment stocks that make possible the semiconductors in these new products but it left off one of my new favorites, Keysight Technologies, KEYS. 

I have made a lot of money with several of these stocks over the past 20 plus years I've covered them in my newsletter as makers of  "picks and shovels."  This is the same idea as "Arms Dealers" but I think better reflects my California roots where gold miners came here in the mid 1800s to make their fortune mining gold.  Very few minors made great fortunes but those selling them "picks and shovels"  and "Levi's Jeans" made money from all miners, not just those who struck gold.

As a shareholder of Agilent (A Charts) since its IPO, I was well aware of the quality of Keysight's products when Agilent spun-off Keysight.  I started accumulating more shares when it fell using profits taken in other stocks. 

It was tough accumulating more Keysight shares after its IPO & spin-off from Agilent due to the falling price and low analyst interest. Analysts did not have an estimate of forward earnings growth estimates until sometime between 2017 or 2018.  Data from my newsletters going back two years:

KEYS 5-yr Growth Estimate as of: 

• 1/18/17 =  None!
• 1/18/18 = 8.66%
• 1/16/19 = 18.35%

Here is an excerpt from my 2017 newsletter to show what I mean

It looked "expensive" based on PE and PEG until recently when, of course, analysts joined me in seeing the potential and gave it a decent growth rate so next year's PEG was 1.05 when I did the February newsletter calculations.

As tough as it was accumulating... I've taken some profits (at $80) and watch it go higher but we did get some shares back late last year for the portfolio at a great price so it made taking profits easier.

The "Explore Portfolio" covered in Kirk Lindstrom's Investment Letter closed Friday at another record high!

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KEYS - Keysight Stock Charts

Keysight Technologies Inc. (KEYS) is the world's leading electronic measurement company.  Agilent spun off KEYS in November 2014, 15 years after Hewlett-Packard spun off Agilent in 1999. Keysight is the original Hewlett-Packard instrument company before HP got into computers and semiconductors. Just as Agilent concentrates on “picks and shovels” for the emerging biotechnology industry, KEYS will focus on making test equipment for the electronics industry. To increase growth, on 4/18/17, Keys acquired networking company Ixia for $1.6B in cash via more debt. Ixia addresses fast-growing communications and networking trends including 5G, IoT, visibility, security and application performance.

KEYS has:

• Filled two of four open gaps from the past year  left from its run from $35.62 to $55.21
• Met the minimum target for the inverted Head & Shoulders pattern shown on my linear chart below. 
• Corrected 8.7% off its record high, much less than any of the major indexes

Hourly Chart

Sold at the Top:  On March 9, less than a month ago, I took profits at $54.  

The question now is where and when do I buy back those shares.

Log KEYS chart

Linear KEYS chart

More KEYS charts

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KEYS Keysight TA - Bull Flag & Inverted Head & Shoulders

Keysight Technologies Inc. Technical Analysis

Bull Flag & Inverted Head & Shoulders Patterns
Click charts for full size images

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This chart shows KEYS is up 29.26% YTD with a bull flag pattern stretching from mid November through today.

Bull Flag 

This next chart shows KEYS has an "Inverted Head & Shoulder" pattern stretching from May 2015 through mid September 2016.  The break of this dashed blue neckline was bullishly tested from above in October 2016 before the big jump to $38 in November 2016.

Inverted Head & Shoulders Pattern

Here is a great "Pro" article at Seeking Alpha "Keysight Technologies: An Intriguing Bull Case, But It Looks Priced In"  that basically says "Keys was a great buy when Kirk was buying in the $20s and low $30s but not so great now after he took profits!"

I believe one reason we are seeing a major "pause" here is Fidelity's Joel Tillinghast said in March that he would stop buying it for his stellar $35B "Fidelity Low-Priced Stock fund" at $35 so he's probably done what I did and take some profits. See Barrons "Fidelity’s Tillinghast: How He Beats the Market"

"Keysight can improve its profitability as a stand-alone company and might possibly be an interesting acquisition. Oftentimes, the second part of the story to spinoffs is that they get reacquired. It might be, by another instrument company. Keysight trades at $26 and is earning not quite $3. On a quarter-to-quarter basis, growth looks a little volatile, but less so on a yearly basis."

I was fairly aggressive buying KEYS for my "Explore Portfolio" in the low $30s and $20s and have already taken some profits with a break-even price now down to $26.47.

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