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Investment Thesis
Active investing is drawn to real life, where values get naked, often stripped of psychology and elegant marketing by power, perseverance, and necessity.
Passive investing, when under real-life strain often fails. Largely because time becomes an inflexible limiter. Time is a dimension which investment passivity ruthlessly abuses as though it would always be without limit – but in practical terms, it never is.
We look to see how actual market price outcomes have followed prior appraisals of the balance between price risks and price reward, using as a sample those daily instances during the past 5 years where that balance was like it is seen now specifically for Edwards Lifesciences Corporation (NYSE:EW). Issues of forecast credibility, frequency, balance and size in each direction all may have significance in the comparisons with alternative investment candidates having similar competitive circumstances and frequent investor references.
Company description
"Edwards Lifesciences Corporation provides products and technologies for structural heart disease, and critical care and surgical monitoring in the United States, Europe, Japan, and internationally. It offers transcatheter heart valve replacement products for the minimally invasive replacement of heart valves. The company also provides surgical heart valve therapy products. The company distributes its products through a direct sales force and independent distributors. Edwards Lifesciences Corporation was founded in 1958 and is headquartered in Irvine, California."
Source: Yahoo Finance
subject growth estimates
Yahoo Finance
Reward ~ Risk Tradeoff Comparisons of Alternative Investments
Figure 1
Reward-Risk Comparisons
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The tradeoffs here are between near-term upside price gains (green horizontal scale) seen worth protecting against by Market-makers with short positions in each of the stocks, and the prior actual price drawdowns experienced during holdings of those stocks (red vertical scale). Both scales are of percent change from zero to 25%.
The intersection of those coordinates by the numbered positions is identified by the stock symbols in the blue field to the right.
The dotted diagonal line marks the points of equal upside price change forecasts derived from Market-Maker [MM] hedging actions and the actual worst-case price drawdowns from positions that could have been taken following prior MM forecasts like today's.
Our principal interest is in EW at location [16]. A "market index" norm of reward~risk tradeoffs is offered by SPDR S&P500 index ETF at [1].
Those forecasts are implied by the self-protective behaviors of MMs who must usually put firm capital at temporary risk to balance buyer and seller interests in helping big-money portfolio managers make volume adjustments to multi-billion-dollar portfolios. Their protective actions define daily the extent of likely expected price changes for thousands of stocks and ETFs.
This map is a good starting point, but it can only cover some of the investment characteristics that often should influence an investor's choice of where to put his/her capital to work. The table in Figure 2 covers the above considerations and several others.
Comparing Alternative Investments
Figure 2
Comparing Alternative Investments
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Readers familiar with our analysis methods may wish to skip to the next section viewing price range forecast trends for EW.
The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions to protect firm capital required to be put at risk of price changes from volume trade orders placed by big-$ "institutional" clients.
[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. Prior forecasts like the present provide a history of relevant price draw-down risks for buyers. The most severe ones actually encountered are in [F], during holding periods in effort to reach [E] gains. Those are where buyers are most likely to accept losses.
[H] tells what proportion of the [L] sample of prior like forecasts have earned gains by either having price reach its [B] target or be above its [D] entry cost at the end of a 3-month max-patience holding period limit. [ I ] gives the net gains-losses of those [L] experiences and [N] suggests how credible [E] may be compared to [ I ].
Further Reward~Risk tradeoffs involve using the [H] odds for gains with the 100 - H loss odds as weights for N-conditioned [E] and for [F], for a combined-return score [Q]. The typical position holding period [J] on [Q] provides a figure of merit [fom] ranking measure [R] useful in portfolio position preferencing. Figure 2 is row-ranked on [R] among candidate securities, with EW in top rank.
Along with the candidate-specific stocks these selection considerations are provided for the averages of near 3500 stocks for which MM price-range forecasts are available today, and 20 of the best-ranked (by fom) of those forecasts, as well as the forecast for S&P500 Index ETF (SPY) as an equity market proxy.
Recent Trends in MM Price-Range Forecasts for EW
Figure 3
Recent MM Price Forecast trends
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This picture is not a “technical chart” of past prices for EW. Instead, it is the past 6 months of daily price range forecasts of market actions yet to come in the next few months. The only past information there is the closing stock price on the day of each forecast.
That data splits the price range’s opposite forecasts into upside and downside prospects. Their trends over time provide additional insights into coming potentials, and helps keep perspective on what may be coming.
The small picture at the bottom of Figure 3 is a frequency distribution of the Range Index’s appearance daily during the past 5 years of daily forecasts. The Range Index [RI] tells how much the downside of the forecast range occupies of that percentage of the entire range each day, and its frequency suggests what may seem “normal” for that stock, in the expectations of its evaluators’ eyes.
Here the present level is near its most frequent presence, encouraging the acceptance that we are looking at a realistic evaluation for EW. With slightly more past RIs above the present RI than below there is some more room for an even more positive outlook.
Investment Candidates' Prior Profitability Prospect
Figure 4
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This comparison map uses an orientation similar to that of Figure 1, where the more desirable locations are down and to the right. Instead of price direction, the questions are more qualitative: “how big” and “how likely” are price change expectations now?
Our primary interest is in EW’s qualitative performance, particularly relative to alternative investment candidate choices. Here EW is at location [6], the intersection of horizontal and vertical scales of +12% gain and +96% assurance (odds of a “win”).
As a market norm, SPY is at location [7] with a +7% payoff and an 87% assurance of profitability. EW tends to dominate all the others in this comparison.
Conclusion
Among these alternative investments explicitly compared Edwards Lifesciences Corporation appears to be a logical buy preference for investors seeking near-term capital gain.
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 at our SA blog under my name.
