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Technology Stocks : WDC, NAND, NVM, enterprise storage systems, etc.
SNDK 244.72-7.9%3:59 PM EST
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To: Unwelcomeguest who wrote (3855)6/26/2018 11:27:36 AM
From: Art Bechhoefer  Read Replies (1) of 4828
 
The low forward looking P/E does make WDC look attractive – on the surface. But other factors, alluded to in the article, and possibly underestimated, are at stake.

China's policy of attaining technology parity in key fields, including memory chips and hard drives by 2025, may result in excluding WDC from fast growth markets that China will try to dominate. Even though prices for flash memory and related components remain strong, Chinese competition will become a major threat in three years, if not sooner.

Retaliatory tariffs, brought on by tariffs imposed as punishment in the guise of national security, rather than to foster competition on a level playing field will REDUCE OVERALL DEMAND for the very products that now contribute to strong prices and high profit margins currently. That's because tariffs are really nothing more than a form of taxation, with the burden shared not only by companies but by consumers. There is enough elasticity in demand (i.e. higher prices leading to lower unit sales) to cut revenue growth and profits – a greater reduction in profits in many firms than the increase in profits from the recent tax cut.

This is why stock prices are weakening, not just the price of WDC shares. For investors, their worst potential losses may come from aggressive purchases of call options. Protecting existing investments through the sale of covered call options is also unlikely to work well at this point, inasmuch as many stocks like WDC are well below recent highs. Sale of covered call options is a conservative strategy that works mainly when the underlying stock is already near its high.

Art
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