Every market day we do this sort/scan
And today what leaps out is Allergan, Inc. (AGN), the Irish-HQ manufacturer of specialty and generic drugs. Founded in 1983 and employing 16,900.
AGN is down 40% in the past two years, in an up market. That simply sets the stage. What happens next is more important. We don't pretend to know the healthcare/drugs business. The Seeking Alpha Contributor Stone Fox Capital does, and they tell that side of the story very well in a Feb. 28 article.
What we know is professional investment market behavior. And all the best fundamental stories from the Street don't mean much to wealth-building investors if they are not accompanied by the stock's performance. When we see market-makers acting in ways to protect their own capital, then we know what may be coming.
We just said MAY BE coming rather than is coming because the future is never certain. But history can offer perspective on probable odds. And here what we see is an exceptionally favorable picture, probably because of renewed institutional buying interest.
AGN has been a continuing part of our actuarial record daily since the turn of this century, over 4,800 market days' worth. Each day's entry contains the stock's closing price and the range of price extremes likely for the stock in the next few months. That range is implied from the actions of market-makers [MMs] when they are called on to provide market liquidity in large volume transactions called "blocks".
The hedging actions they take in the derivative securities markets to protect the temporary commitments of their capital (capital required to facilitate block transactions) tell just how far the subject of the trade's stock is likely to go, both up and down. A measure comparing the closing price to that range provides a picture of the balance of up to down expectations of both the buyers and sellers of the protections. The measure of what proportion of the range which lies to the downside is referred to as the Range Index [RI].
When we look at the current markets, we find AGN closed on 3/1/2019 at the bottom of its coming price expectations range. Only 1% of the range is below the range, and 99% of it is above. In the past five years, this has happened only 21 times - about once a calendar quarter, but not like clockwork. While infrequent, ALL 21 prior experiences were followed in the next three months by either reaching the top of the range forecast or ending the three months with a price above a next after forecast-day-close-price position-entry point.
Those 21 gains averaged +26%, about double what the current forecast holds as a top-of-range upside price potential. We would not expect the 26% average to recur and regard the +13% as a desirable target. If we are able to compound as frequently as in history (25 market days) or some 10 times a year, the original capital would become fivefold.
The Figure 1 following shows how AGN's price and MM forecasts for it have declined in the past six months. Its vertical lines measure the price range forecasts, and the heavy dot in each give an idea of the upside to downside proportions.
Here is how AGN compares to its industry competitor stocks on a Risk~Reward basis:
Stock symbols in the blue field at right have their numeric tags in the map at left at the intersection of their red vertical-scale of actual price drawdown experiences following the current prospects for green horizontal-scale upside-price changes. Both scales are of percentage price change from zero to 25. Good is down and to the right; any issues above the dotted diagonal present more risk than reward.
AGN is at location , and SPDR S&P500 Index ETF (SPY) as a proxy for the equity market is at .
The same data which is on Figure 1 is repeated here in Figure 3, columns 1-13, for SPY, an average of all 2,723 credible stocks in our population of MM price-range forecasts and an average of the 20 most attractive wealth-building members of that population. It should be evident that AGN is amply competitive with all of these alternative equities.
Allergan plc appears to be the most-attractive long equity position for wealth-building portfolios.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AGN 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.
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. First months of 2019 to date have produced over 800 hundred profitable position closeouts.