On Jan. 29, the Central Bank of Japan said it is instituting a negative interest rate scheme, in large part to try to devalue its currency again. It worked and the Fed just got another reason to cut its own rates and create new forms of quantitative easing and/or negative interest rates of its own.
We've got the EU and Japan now with negative interest rates while the Fed is supposedly going to raise rates this year? The Fed's hands are tied and we can expect lower rates and more easing in the U.S. as the Fed/government tries to devalue our currency. I've long explained that the currency wars in the world in the 21st century are a race to the bottom, including in this article headlined, "Why the currency wars are likely to hit the stock market" from almost exactly one year ago today when the markets were at all-time highs.
One stock I still own that is also impacted by all of this is Japan-based Sony (SNE). A weaker yen is good for Sony and its export-centric businesses.
Sony's earnings report on Jan. 28 was just about exactly what I expected. The image sensor business is fading near term, as I'd said it would, because customers such as Apple (AAPL) and Samsung are struggling to grow smartphone unit sales. Sony cut its forecast for image sensor sales to 490 billion yen from a previous forecast of 570 billion. Not a surprise, and a good sign that there's still room to grow the image sensor business is that Sony is seeking new opportunities in the automotive business, which needs sensors for autonomous driving technology. Qualcomm (QCOM), Nvidia (NVDA) and Sony are probably the best ways to play the long-term Smart Car Revolution for now. (Apple is part of TheStreet's Action Alerts PLUS portfolio. Qualcomm is part of the Dividend Stock Advisor portfolio.)
Also, as I've been saying for a long time, the TV and movie business at Sony is key and that division saw the fastest growth for the company last quarter, as sales surged 27% year over year and operating income more than tripled in Sony's Hollywood operations. I think Sony's video library alone is going to bring in billions of dollars in cash flow/earnings over the next three to five years as the streaming-video wars heat up and Netflix (NFLX), Hulu, Amazon (AMZN), Microsoft (MSFT), Apple -- all with billions to spend -- license the content. (Amazon is part of TheStreet's Growth Seeker portfolio.)
The day after Sony reported earnings, when the stock was up 17%, I told my Trading With Cody subscribers that I was going to sell half the calls I'd bought into the teeth of the previous week's panicky market selloff because they were up more than double what I paid for them. Sony's price has since fallen approximately 12% and, with the company's market cap at roughly $26.5 billion, I think Sony is trading at a very attractive price.
Sony has about $17 billion in cash and short-term investments and only $6.1 billion in long-term debt, which gives the company an enterprise value (excluding minority interests and short-term debt) of roughly $15.6 billion. This leaves Sony trading at an enterprise multiple of only 8.0x, based on analysts' consensus estimates of $1.54 in EPS for fiscal 2017. Analysts are only expecting Sony's sales to grow 1.7% in fiscal 2017, but I think the company's growth rate will be significantly higher.
All of this leads me to my conclusion: Sony's current $26.5 billion market cap could become $50 billion to $100 billion in three years.
