Equifax, Inc. (NYSE:EFX) comes up in our near-term capital gain opportunity screen as an unusually promising buy candidate, with adequate history and good odds for a profitable outcome.
Opportunity is not always where it may be expected. Apparent likes don’t always attract one another when it comes to near-term capital gains prospects. Dissimilar investments in comparisons with one another often strengthen attractive aspects sometimes under-appreciated – but perhaps highly profitable.
According to Seeking Alpha news report, here are dozens of stocks due to trumpet their accomplishments (or excuses) of 2020’s first quarter. We put them to the test of how Market-Makers presented their perceptions of the trade-offs between upside and downside price changes likely when called upon to risk their own capital to facilitate the momentary balance between buyers and sellers. Please see Figure 1.
This map locates securities at the intersection of prospective price gains (green horizontal scale) and potential price drawdowns (red vertical scale) based on market-maker hedging behavior to protect their necessary endangerment of firm capital as they enable volume trades. Desirable conditions are down and to the right.
The “frontier” of best advantage – save for the attractive intrusion of EFX at location  – runs from KO at location  to V at  to CCL at .
The alternative investment candidates posed by the calendar’s news collection are from across the board of commercial activities. So, it may be pure chance that figure 1 does not compare EFX’s coming price change prospects with stronger competitors.
To allay that concern, and to minimize a search among over 2,600 other equities for which we have MM coming-price-change forecasts, we used the score-keeping records of Yahoo Finance to identify what other investors thought were appropriate alternative choices to EFX. Yahoo regularly lists five other stocks “also watched by” investors interested in ‘___’, here EFX.
Most, but not all, of these have operating orientations in the same direction of EFX, so we used that five’s “also watched by” lists of five further stock symbols. That produced the more tightly grouped list of potential candidates as alternative investments in competition to EFX – all based on the same MM criteria and evaluations of prior forecasts. Please see Figure 2.
Apparently, several of these “downstream”-located issues have some of the same capital gain aspects as what attracted MMs (and investors) to EFX, here at . FISV at location , FIS and AIV at  and APH at  may bear further examination. To the contrary, GWW at  and DOV (one of the first-five EFX “alsos”) at  are less competitive prospects.
Figures 1 and 2 only consider the Risk and Reward aspects of their symbol contents. Other questions about how big, how likely, and how soon capital gains might be expected also play a role in intelligent portfolio content selection. They are considered in the table of Figure 3.
The actual price range forecasts implied by MM hedging are in columns [B] and [C], with the upside price potential of [B] rising from [D] in [E]. Column [F] contains the worst price drawdowns for these stocks of the last 5 years in any of the 3 months following the forecasts having upside-to-downside prospects like those seen here. The proportions of [E] and [F] are what were seen in Figure 2.
The remaining data in Figure 3 is the after-the-fact outcomes history of long positions in these stocks following those forecasts, their frequency counted in [L] from [M]. [H] tells what percentage of the [L] positions created profits, of size [ I ], net of losses. Those prior [ I ] gain accomplishments are compared to today’s prospects in [N] as a credibility measure.
With the Win Odds of [H] we have an additional way to condition our expectations for the future’s profit potential. By weighting the rewards of [ I ] with [H] and the risks of [F] with 100-H, and combining the two, [O] + [P] into [Q], we have a measure which takes prior results into consideration.
That [Q] measure can (and should) be converted further into a RATE of risk-adjusted return by recognizing how long [J] the capital earning the results was committed. The measure of basis points (1/100th of 1%) per day will directly convert (by compounding) into the equivalent of CAGR, shown without risk adjustment in [K]. For reference, 19 bps/day when sustained for a year doubles the capital involved, a 100% CAGR.
Figure 3 should clarify the capital gain prospect superiority of EFX over the other “coulda-been-a contenders”. Here is a description of Equifax, Inc. as seen by Yahoo Finance:
“Equifax Inc. provides information solutions and human resources business process outsourcing services for businesses, governments, and consumers. The company operates through four segments: U.S. Information Solutions [USIS], Workforce Solutions, International, and Global Consumer Solutions. The USIS segment offers consumer and commercial information services, such as credit information and credit scoring, credit modeling and portfolio analytics, locate, fraud detection and prevention, identity verification, and other consulting; mortgage services; financial marketing; and identity management services. The Workforce Solutions segment provides employment, income, and social security number verification services, as well as payroll-based transaction and employment tax management services. The International segment provides information service products, which include consumer and commercial services, such as credit and financial information, and credit scoring and modeling; and credit and other marketing products and services, as well as offers information, technology, and other services to support debt collections and recovery management. The Global Consumer Solutions segment offers credit information, credit monitoring, and identity theft protection products directly to consumers through Internet. The company serves customers in financial service, mortgage, employers, consumer, commercial, telecommunication, retail, automotive, utility, brokerage, healthcare, and insurance industries, as well as state and federal governments. It operates in the United States, Canada, Australia, New Zealand, India, the United Kingdom, Spain, Portugal, Argentina, Chile, Costa Rica, Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru, Uruguay, Brazil, the Republic of Ireland, Russia, Cambodia, Malaysia, Singapore, and the United Arab Emirates. Equifax Inc. was founded in 1899 and is headquartered in Atlanta, Georgia.”
How MM Forecasts for EFX have Trended Recently
The vertical lines in Figure 4 are MM daily forecasts of expected prices yet to come, not history of past prices. The heavy dot accompanying each forecast is the day’s market quote when the forecast was made. It splits each range into upside and downside price change prospects.
When the current quote is below the forecast’s low, as it recently has been, the range line becomes green instead of its normal white. The Range Index [RI] becomes a negative at such times, since it measures the proportion of the whole range between the day’s close [D] and the forecast low [C]. The “thumbnail” picture at the bottom of Figure 4 shows the frequency distribution of RIs. Its present -4 is extremely low, supporting the notion of likely price increases returning the stock to a normal condition.
That notion is further encouraged by its [H] Win Odds of all prior -4 RI experiences resulting in profitable outcomes. But no guarantees.
Market-maker current forecasts and prior experiences with similar expectations, both absolutely and in comparison with alternative investing prospects make Equifax, Inc. (EFX) an attractive buy candidate for near-term capital gain.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EFX 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.