The investment thesis of this article is that the most important reason for investing in any stock is its potential for portfolio wealth-building. That requires informed forecasts of its likely future price. As a starting point we have legal access to the near-future price-range expectations of the most experienced, best resourced players in the equity investment community, the Market-Makers.
This is an analysis of how the prices of specific securities are likely to change in the next 3-4 months, based on the way major investment organizations ("institutional investors" or "big-$" funds) have perceived those prospects and made multi-million-dollar trade changes of holdings in their multi-billion-dollar portfolios. That rationale is explained further in my SA blog's article "Why Read This Report?"
The report is not a study of years-plus effects of economics, technology, politics, or competitive use of resources on earnings per share of securities. Such studies by others are embedded in the big-$-funds stock price forecasts, prompting their volume-trade transaction orders. Analyses of such influences are covered as helpful background by other SA contributors.
This is a comparison of present-day opportunities for capital gain among many related alternative choices for wealth accumulation as seen by investors with the capital and human resources sufficient to cause such price changes.
"Editas Medicine, Inc. operates as a clinical stage genome editing company. The company focuses on developing transformative genomic medicines to treat a range of serious diseases. It develops a proprietary genome editing platform based on CRISPR technology to target genetically addressable diseases and therapeutic areas. The company develops EDIT-101 for Leber Congenital Amaurosis type 10, a genetic form of vision loss that leads to blindness in childhood. It also develops other therapies for eye diseases, such as Usher Syndrome 2A, which is a form of retinitis pigmentosa that also includes hearing loss; Retinitis Pigmentosa, a progressive form of retinal degeneration; and Herpes Simplex Virus 1 that causes lifelong infections leading to ocular and oral disease. In addition, the company develops hematopoietic stem cells for treating sickle cell disease and beta thalassemia. It has a research collaboration with Juno Therapeutics, Inc. to develop engineered T cells for cancer; strategic alliance and option agreement with Allergan Pharmaceuticals International Limited to discover, develop, and commercialize new gene editing medicines for a range of ocular disorders; and strategic research collaboration and cross-licensing agreement with BlueRock Therapeutics to combine their respective genome editing and cell therapy technologies to discover, develop, and manufacture engineered cell medicines. The company also has a strategic research collaboration agreement with Editas Medicine, Inc. to explore in vivo delivery of genome editing medicines to treat neurological diseases. The company was formerly known as Gengine, Inc. and changed its name to Editas Medicine, Inc. in November 2013. Editas Medicine, Inc. was founded in 2013 and is headquartered in Cambridge, Massachusetts."
Source: Yahoo Finance
"Crocs, Inc., together with its subsidiaries, designs, develops, manufactures, markets, and distributes casual lifestyle footwear and accessories for men, women, and children worldwide. It offers various footwear products, including clogs, sandals, flips and slides, shoes, and boots under the Crocs brand name. The company sells its products in approximately 85 countries through wholesalers and distributors, as well as through stores and e-commerce sites. As of December 31, 2018, it had 120 retail stores; 68 kiosks and store-in-stores; 195 outlet stores; and 13 company-operated e-commerce sites. The company was founded in 1999 and is headquartered in Niwot, Colorado."
Source: Yahoo Finance
The companies are different, but the stocks have similar potentials for wealth-building by individual investors in the coming 3-4 months. And those prospects come from the likely actions of the same source: Institutional Investor interests. The potentials can be described in near-identical ways, for the purpose of settling on an investment choice.
The prospects for these stocks get evaluated in the same way: From the cost of protecting temporarily at-risk capital from unwanted price changes. Specification of how big and how likely those changes may be come about at concurrent times and through the same eyes for both stocks.
Our source is the market-making community serving "institutional" investment funds and organizations managing multi-billion-dollar portfolios by negotiating and facilitating big-volume "block" trades. Their necessary hedging actions reveal their price expectation insights, updated daily as pictured in Figure 1 for Editas Medicine, Inc. (EDIT) and for Crocs, Inc. (CROX) in Figure 2.
The vertical lines in this picture are not past actual market prices like those seen in "technical analysis charts." Instead, they are forecasts of likely future ranges of market stock prices implied as probable in coming weeks and near months. The heavy dot in each vertical is the market close price on the day of the forecast. It splits the forecast range into upside and downside price change prospects.
The imbalances between up and down potentials are what are useful in estimating both coming price direction and extent of change. Their proportions are measured by the Range Index [RI]. Its measurement quantity is the percentage of the whole forecast range which lies below the current market quote. A 20 RI has 4 times as much upside prospect (the other 80%) as down. A 33 RI has only 2 times as much upside potential as downside.
Segregating past MM implied forecasts by their RIs produces clues to how market prices have reacted to the conditions seen by the MM community at various points in time. We use a 5-year sliding window to count how many prior forecasts (the sample size) have been like the current Range Index.
The small "thumbnail" pictures in Figures 1 & 2 show how these RIs have been distributed daily over the past 5 years.
How effective the MMs have been in forecasting for these stocks is a matter of market records, when conditions of uncertainty similar to today's are examined. That was done in the rows of data between the graphics of each figure. For ease of comparison, they are repeated and slightly expanded in Figure 3:
What is important to us in this analysis is how big a price gain is in prospect, column [E], and how likely as a proportion [H] (out of 100) is today's RI forecast [G] to produce a profit. The odds come from the [L] sample of such 5-years of daily prior forecasts [M].
Column [H] of Figure 3 tells that CROX wins profits in 96% of its forecasts at RIs of 50. Some 28 forecasts [L] in the past 5 years have had today's upside-to-downside price change proportions, and resulted in +13.6% average payoff realizations.
The size of [ I ] relative to [E] is a measure of [E]'s credibility in [N]. CROX's performance (at this level of its RI) has been more successful than MMs are currently apprehensive about, should they need to take a "short" posture. So the credibility of MM forecasts for CROX (1.30) is greater than for EDIT forecasts (0.80) where CROX current profit expectations were substantially exceeded. Albeit that EDIT payoffs were larger than CROX's.
But the EDIT forecasts were done at a higher exposure to risk [F] of -10.3% compared to CROX's of only -6.4%. And it turns out that the exposures were rarely incurred in the case of CROX. For prior forecasts like these the odds of profitable outcomes [H] were 96 out of 100. Not so for EDIT, about 1/6th of its 100 sample cost some of the -10% price drawdowns.
Still, CROX's current Range Index of 50 leaves less of the expected price range of [E] than does EDIT's RI of 29. We accommodate these differences by weighting the good [E] by [H] and the bad [F] by 1-[H] to get a risk-adjusted [O]+[P] of [Q].
There we have a yardstick of opportunity adaptable to any contestant security in the competition for inclusion in an investment portfolio.
Time required [J] to accomplish the payoff is another important dimension for any investment mission. The retirement, tuition, or health emergency clock won't patiently wait for "long-term-trend" investments to be "sure" of their "passive investment" buy&hold strategy results.
Compound Annual Gain Rates [CAGR] are the essential measures [K]. Figure 3's rows are ranked by the historical results (of today's RI statistics) with SPY providing a lackluster +6% at today's RI outlook of 54.
One additional complication of being time-efficient in an investment strategy is that the score-keeping can't be easily sliced up into uniform time periods. That is not what happens to holdings in an active investment strategy. Gains (and losses) occur in irregular lumps of time, and we need to evaluate likely prospects in the way they may be accumulated.
What is done in proper financial analysis of any capital commitment is to anticipate the RATE of gain or cost in units of change per time of involvement. The most commonly used measure is basis points per day, where a basis point is 1/100th of a percent.
That's a tiny unit, but is what works best. Put together and maintained each day for a year, 19 of them would double your investment. Compounding makes them powerful.
In Figure 3 we use the Odds of gain [H] as a weight for the average prior payoffs [ I ], and take the complement of [H] ( 100 - H ) as a weight for the risk prospect [F]. Put together as [O] + [P] in [Q] we have an odds-weighted net outcome of each row's prior MM RI forecast sample [L]. Then by converting those [Q] nets into bp/day in [R] we have a guide to making investment selection decisions across a broader array of alternatives.
Using [R] as an integrated measure of wealth-building desirability places CROX first trivially over EDIT, and involves an indicated shorter average holding period of 6+ weeks of market days, rather than EDIT's 8-minus weeks.
CROX competes effectively in the broad population of MM forecasts for 2710 stocks, ETFs and market indexes. That population carries a large number of equities with infrequent and overly-optimistic forecasts resulting in a rate of loss of -5.5 bp/day when adjusted for price risk. The population win odds are only 60, with losses at 40 out of every 100. Decades of daily experiences show Win Odds below 80 to be problematic.
Better prospects for near capital gains currently exist in either of this pair than among the average of the best 20 of that forecast population. EDIT offers the prospect of gain at a CAGR rate of +229%, compared to SPY's +6% and the forecast population of +13% (ignoring risk). The population's best 20 have histories with CAGRs averaging +170%.
Another important dimension which ought to be included generally by an astute investment audience may not be included for lack of the information's general availability. That is the lack of awareness of the potential capital gains in CROX by individual investors. Please check the columns [S] thru [V] of Figure 3.
It shows CROX to be an almost unknown presence among SA Readers - only 8,700 have an interest, compared to over 400,000 curious of the outlook for SPY. Little wonder that at today's RI the Win Odds are at 96. No guarantees, of course, but it usually profits for an individual investor to be an odds-player.
Our preference here favors the slightly quicker but surer buy of Crocs, Inc. over Editas Medicine, Inc. Both are easily favored as capital gain candidates over most other stock buy opportunities at this point in time.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions other than to MGPI 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.
Additional disclosure: Disclaimer: 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 in the SA blog of my name.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CROX over 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.