What makes a “best buy” on our scorecard
Our primary stock selection favor is for an investment candidate with demonstrated, reliable, odds-on stock price growth for the investment portfolio’s value, at rates of accumulation substantially above market index ETF experience. The reason for this focus lies in credible estimates that more than 25 million US investors will not have adequate financial resources to meet their retirement needs when the time comes.
The resource holding most hope for investment results improvement is the efficient use of time in investing strategy and tactics. Active Investment Management utilizes time opportunistically, while buy & hold wastes time enormously.
The cast of investment candidates on the title topic
(used with permission)
The stock symbol locations numbered on this map are the x-y axis intersection co-ordinates of their reward and risk prospects on the date shown in the lower left corner. The locations are price-sensitive and may move from day to day.
Upside price reward forecasts are from a behavioral analysis (of what to do right, not wrong) of Market-Makers [MMs] protecting themselves from possible damaging future market price moves. Their potential price change reward forecasts are measured on the green horizontal scale.
The risk dimension is of actual price drawdowns at their most extreme point while held in previous pursuit of upside rewards similar to the ones currently being forecast. They are measured on the vertical red scale.
Both scales are of percent change from zero to 25%. Any stock whose present risk exposure exceeds its reward prospects will be above the dotted diagonal line. The best tradeoffs are down and to the right. The green area covers anything seen having 5 times (or more) as much upside prospects as downside exposure.
CVS Health (NYSE:CVS) and Walgreens Boots Alliance (NASDAQ:WBA), both at location , are of greatest interest to an SA reader at present, but many other alternatives are available. For example, in terms of the reward~risk trade-off, Dollar Tree (NASDAQ:DLTR) and Target (NYSE:TGT) at  dominate the two at  both in higher prospective rewards and lower experienced risk exposures.
In addition to the basic price reward~risk tradeoff, there are a number of qualitative questions of importance to most investors in any buy proposition:
- How big a price gain might reasonably be expected?
- How likely is it that the forecast upside price change may be reached?
- How long might it take to get there?
- If my patience runs out before that period, what might I have to settle for?
- What are the odds of my having to take a loss?
- How bad a loss might that be?
- How confident should I be about these forecasts?
- How do they compare to other investment candidates now?
These considerations are evaluated in Block Trader Forecast [btf] reports on each of the subject companies A row of data in each report reflects on market price outcomes following all prior forecasts in the past 5 years of equivalent Range Index balances between upside and downside near-term price change prospects.
The CVS btf may act as a guide between the qualitative question numbers (above) and the btf report data row headings (below).
CVS Health, Inc.
(Used with permission)
These reports are not conventional backward-looking “technical analysis charts” of past prices. Instead, they show in each vertical line the forward-looking span of coming (future) price ranges implied to be likely by the then-current self-protective hedging actions of Market-Makers [MMs].
The heavy dot on each vertical line is the closing price of the security on the date the forecast was made. It splits the forecast into upside and downside price change prospects. Their proportions are measured by the Range Index [RI], which tells what percentage of the whole forecast range lies below the then-current market quote. The frequency of RI occurrences during the past 5 years is shown in the “thumbnail” picture at the bottom of the btf report.
The numbered “qualitative consideration” questions above are addressed by the row of data between the two pictures.
Question number 1.) of “how big a price gain may reasonably be expected” is contemplated by more than one item of data. The Sell-target Potential tells the percent change between the Current Price and the High Range Forecast, and it is the reward dimension used in Figure 1. That prospects should be taken in light of what previously has happened when following similar RI forecasts, shown in %Payoffs.
Question number 2.) of “how likely may it be reached” is suggested by the Cred.Ratio of %Payoffs to Sell Target Potential, further conditioned by the Win Odds percentage of all such prior forecasts ending at a profit (of any amount) when the standard TERMD portfolio management discipline is followed.
Q 3.) of “how long has it previously taken to produce such results” is told by Days Held pursuing the TERMD discipline.
Q 4.) of “what bad result might have to be settled for” is indicated by Drawdown Exposure, the worst case of experienced price drawdown (from buy commitment cost) while pursuing the upside potential. This scariest point is where the investor is most likely not to wait out a prospective recovery possibility and instead do the worst thing possible: sell at the bottom. It is the risk dimension used in Figure 1.
Q 5.) wants to know the odds of having to take a loss. It is the complement of the Win Odds.
Q 6.) see Q 4.)
Q 7.) Confidence in the forecasts is importantly dependent on the number of historical experiences available in Sample Size and the length of the observation period in which they occurred. Both are shown in number of market days in the last 5 years for that level of RI and when a credible forecast could be made. Everything is relative, but we prefer samples of 20 or more from at least a 3-year (756 market days) history. Extreme (negative) RIs often make a sample size suspect and use of the information a judgment call.
Q 8.) is the reason for presenting a number of btfs to choose from, with directly comparable dimensions relating to price rather than the vagaries of financial accounting, economics, international influences, competitive bombast, or media hype. The informed judges contemplating likely prices already have filtered and distilled those other contents.
Still, what is most important is how the coming prices are best able to fit into the investor’s individual needs and preferences, and only he/she is qualified to decide that.
Here is the other eligible candidate’s btf report for your contemplation.
Walgreens Boots Alliance, Inc.
(used with permission)
Comparing forecast data: Current and history
Current forecasts are the starting point; they define the expected end point of price action to achieve an increment of wealth accumulation. The end point may occur sooner in time by one or another prospective investment candidates, or at the same for both (or several) if the accepted holding patience period end is reached under a TERMD portfolio active management strategy.
The history of actual market price changes can provide reference norms on each specific security, and this is important because other available financial, economic, and industry competitive information color investors’ attitudes about individual securities. On top of that, it is known that where the stock is priced in the expected range of coming prices being forecast also has significance.
Because of that, at each daily forecast evaluation, a sample of the past 5 years’ available forecasts is taken for all prior Range Index forecasts at the present-day RI. Average values for Win Odds, %payoffs, Worst drawdowns, Days held, and CAGRs are from that sample.
The size of the upside price change in prospects between these two drugstore stocks at present has little difference. But the history of CVS has been less favorable than that of WBA. In fairness, note that WBA has not had as long a period of existence (661 market days, less than 3 years), while CVS has had to struggle with a full 5 years of difficult competition.
The fact that both CVS and WBA are accorded similar future stock price expectations and have had similar price drawdowns in the last 2+ years may be more important than their historical differences.
What is significant is that while attractive conventional opportunities for stock price gains may be ahead of both, evidence of the past abilities of the market-making community to identify coming price prospects, given their clients’ trade orders, has been dismal.
A key measure of that ability is the Win Odds figure. For WBA, fewer than half of the 93 prior forecasts at the RI 22 level have been closed out profitably under TERMD discipline. For CVS it is even worse, with little better than 1 in 4 of the 46 forecasts at an RI 19 level making money. And all 46 averaged holding periods of the full time allowed, so none of them reached their sell targets.
Rather than suggest that stock A is better than stock B here, a better guidance is to look at other retail operations that can provide evidence of coming price expectations producing profitable holding experiences.
Figure 1 provides many alternatives, from big-cap stocks like TGT, able to compete with Amazon (NASDAQ:AMZN), to attractively priced specialty store stocks like Signet Jewelers (NYSE:SIG). Low-risk-exposures like WMT or Computer Discount Warehouse are available where risk avoidance is the driving motivation.
We will be pleased to make such comparisons where wealth-building is the portfolio’s intent. Let us know where there are specific investment candidates in mind.
Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.
We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So, our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided. Our website (see the author’s SA profile) has further information.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.