Which Top SA Reader-Interest Stock Now Has Best Near Price-Gain Prospects - Netflix?

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Includes: AMZN, C, DIS, FB, JNJ, MSFT, NFLX, TSLA
by: Peter F. Way, CFA

Summary

Not only biggest price gain expectations (by knowledgeable appraisers) but which are the prospects most likely to be achieved?

How well have similar prior expectations of the evaluators been realized in subsequent market actions over the next few months? Credibility and odds of profit questions are raised.

We examine those considerations for the 20 stocks and ETFs where Seeking Alpha readers and contributors most want to be kept informed.

Appraiser expectations are derived from the self-protective hedging behaviors of well-informed, essential market professionals sharpened by their every-day, at-risk experiences.

Decade-long actuarial histories of prior forecasts support both qualitative and quantitative dimensions of the appraisals.

Start with the Reward~Risk Picture Today

Figure 1

(used with permission)

This map plots Market-Maker [MM] upside price prospect Reward co-ordinate on the green horizontal scale, and the price drawdown Risk exposure experiences of similar prior forecasts on the red vertical scale. Good meets evil at the dotted diagonal.

Netflix, Inc. (NASDAQ:NFLX) at [2] and Tesla Motors (NASDAQ:TSLA) at [9] have the largest upside price change prospects, but with risk exposures exceeded only by Citigroup, Inc. (NYSE:C) at [1].

But a look at the qualitative side of these forecasts may color this Risk~Reward Tradeoff pictured in Figure 1. Let's look at how frequently profitable forecasts like these have been achieved, and how big those payoffs, net of loss experiences actually were.

Figure 2

(used with permission)

Given the current amply-priced condition of equity markets, and the prominent nature of the stocks of interest to SA members, this picture suffers from its present fixed scales.

The horizontal scale looks at prior forecasts, similar to the present ones in terms of their balance between upside and downside proportions. It tells what percentage of them in each security have had profitable outcomes. Here only Facebook, Inc. (NASDAQ:FB) and NFLX at [1], Johnson & Johnson (JNJ) and Disney (NYSE:DIS) at [3], Microsoft (NASDAQ:MSFT) at [5], and Amazon (NASDAQ:AMZN) at [6] have prior forecasts with histories of some 8 out of 10 as winners.

The vertical payoff scale is inverted, with break-evens or losses at the top and achievements increasing to the bottom. The attempt in constructing the picture this way was to parallel the effect of Figure 1 where desirable outcomes are down and to the right, and less attractive ones are up and to the left. This choice is open to our review and adjustment.

But for now, where the principal interest is in the direction of reward achievement, rather than risk avoidance, the occupants of point [1], FB and NFLX are of most interest. They can be examined further by looking at their Block Trader Forecast [BTF] recent histories in Figure 3 for NFLX and Figure 4 for FB.

Figure 3

(used with permission)

The vertical lines of this picture connect the stock's price extremes anticipated by the hedging activities of the market-making community as they provide market liquidity to accommodate large-volume "block" transactions in day-by-day activities. The heavy dot in each line is the market closing price on the date the forecasts were made. It separates the range into upside and downside prospect proportions. A Range Index [RI] metric tells what percentage of the day's forecast range lies below the market quote.

The row of data between the two blue-background pictures details the implied forecast price range, its upside percentage change dimension, and worst-case price drawdowns in the 3 months after prior forecasts with similar Range Indexes of 25. There have been 177 such forecasts out of the 1261 market days in the past 5 years.

Comparing the actually-achieved net payoff percentages against the upside price-change prospects being offered produces a measure of credibility on the reward side of the R~R tradeoff.

The odds for success, as measured by a standard portfolio management discipline, has been 78 profitable experiences out of each 100. Including the other 28 (of each 100) the aggregate payoff experience for the 177 is +9.2%. On average that required a holding period time investment of 43 market days of a 252-market-day year, producing a CAGR of 69%.

While that is very attractive, the resulting credibility of the +18.2% forecast in comparison to the +9.2% achievement is only 0.5, suggesting a considerable discounting of the forecast may be in order.

Let's see how this compares with FB, its closest current Odds & Payoffs competitor.

Figure 4

(used with permission)

FB's upside prospect of +12.1% is less than NFLX's +18.2%. But its +9.3% payoff achievement in a 79/100 Win Odds surrounding puts the two stocks back on a fairly equal footing. The time-investment in each case is about equal, as are the resulting CAGRs of 68% and 69%.

FB's shorter market-life of only 982 forecast days, almost 4 years since its IPO, has seen 289 days in which its 37 Range Index has provided measurable outcomes. Both stocks have adequate data to help support preferences in buy choices.

Conclusion

Today it's a neck-and-neck horse-race between the two stocks as to which might be the better bet over the next 3 -6 months. History has provided ample payoff outcomes in only 2 months plus a few days, on average.

And it is evident that these two choices are likely to outrun all the others in this 20-candidate race. Another race will be run when this one is over, compounding the payoffs from this one. And every day provides a new starting-gate opportunity - when there is capital to put to work.

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.