The purpose of market transactions is to determine prices – agreements at the time of the trade between buyer and seller. One, neither, or both, may be pleased by the outcome, but both will be satisfied in some way by the transaction.
Getting them to that point sometimes takes the persuasion of less satisfactory outcome possibilities, ones formerly rejected by the parties but now made likely, and possible, by intermediaries known as Market-Makers.
Risks are involved in so doing, but risk-takers – for a price – will participate if adequately encouraged. Therein lie the forecast of price extremes, up and down, and the means of guessing price change direction, size of the change, and how likely it will come. The history of prior price extreme prospects may provide reliable odds on what is to occur next.
This article examines the present prospects for PC Connection, Inc. (CNXN) and several stocks of firms in competition with CNXN. Those prospects, while near in time, often are far more powerful than the oft-offered “long-term trend” potential payoff prospects.
“PC Connection, Inc., together with its subsidiaries, provides a range of information technology (IT) solutions. The company operates through three segments: Business Solutions, Enterprise Solutions, and Public Sector Solutions. It offers IT products, including computer systems, software and peripheral equipment, networking communications, and other products and accessories. The company also provides services, such as design, configuration, and implementation of IT solutions. In addition, it publishes Connected, a quarterly publication that provides informative articles on the latest technologies and industry trends; distributes specialty catalogs to education, healthcare, and government customers; and MacConnection that publishes a catalog for the Apple (NASDAQ:AAPL) market. The company markets its products and services through its Websites comprising connection.com, connection.com/enterprise, connection.com/publicsector, and macconnection.com. It serves small to medium-sized businesses (SMBs) that include small office/home office customers; government and educational institutions; and medium-to-large corporate accounts through outbound telemarketing and field sales, and marketing programs targeted to specific customer populations, as well as through digital, web, and print media advertising. The company was founded in 1982 and is headquartered in Merrimack, New Hampshire.”
Source: Yahoo Finance
“Street” forecasts shown above offer big next-year growth for CNXN, the stock’s major support for the next 5 years. What to do with the stock beyond “next year” is left to conjecture.
A contrasting approach using price-change forecasts from the Market-Making [MM] community suggests more powerful outcomes from Active Investing strategy [AIs], rather than the conventional Passive Investing strategy [PIs]. Figure 1 shows the MMs Reward-Risk forecast tradeoffs.
(Used with permission)
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 stocks apparently of best advantage are along a “frontier” from NSIT at location  to “market-average” notion SPDR S&P 500 Trust ETF (SPY) at location  to Perficient (NASDAQ:PRFT) at  to Infosys (NYSE:INFY) at . Our interest focus is on CNXN at .
Alternatives to CNXN are explored in greater detail in Figure 2, where other conditions contributing to reward and risk are contemplated. Principal questions for all alternatives are “how likely are these outcomes to happen,” and “can their impact be improved?”
Figure 2 presents the MMs’ price range forecasts for the best-ranked alternative investment candidates in Figure 1, along with the past 5 years of daily forecasts outcomes from their prior forecasts with the same proportions of today’s up-to-down prospects.
This table presents data on the stocks most likely to produce satisfying rates of capital gain under the portfolio management discipline known as TERMD, as explained in the article titled “How To Better-Than-Double Your Capital Gains (From Stocks Alone) By Using TERMD Portfolio Discipline” in my SA blog.
That discipline seeks the largest, most likely, quickest to be captured net capital gains with the least interim exposure to price drawdown on the way to target reward attainment.
Contributing to that evaluation are the demonstrated odds of a profit-successful forecast in column [H], its complement of 100 – H, or loss frequency, size of net gain attained [I] and size of worst loss experience [F], so that, when appropriately weighted in [O] and [P], they produce the Net of [Q]. Respecting the power of compounding, [Q] converted into basis points per day [J] of capital commitment at [R] presents a highly comparable figure of merit (fom) for investing preferences.
Figure 2 is row-ranked on [R]’s figure of merit (fom) and contrasts CNXN’s capital gain prospects with the others.
Perficient appears to be a strong contender choice in its [R] ranking, but its good performances in [H], [I], and [K] are the product of a small sample [L] of prior forecasts (only 7) at very low Range Indexes [G]. PRFT’s history of forecasts [M] is a full 5 years of market days, so its small sample is a product of its Range Index itself being extreme, with current price [D] being down at the bottom of the forecast range. The market-makers apparently see little likelihood of much further price decline at that point, but the condition is a historical rarity.
CNXN has an outstanding Win Odds ratio [H] of 19 out of every 20 forecasts made at its current equally low Range Index of -1. It produced an average of +17% gains in a sample of 20 out of 3+ years of forecast history. Its shorter holding period of 39 market days produces a larger CAGR than PRFT’s.
Personal investor preference is likely to prevail in regarding PRFT’s attractiveness relative to CNXN on an either-or choice for capital commitment. None of the other alternative information-technology investment candidates are in their league.
Recent price trend comparisons
Figures 3 and 4 show how these leading stocks compare in the trends of their MM price range forecasts.
(Used with permission)
The vertical lines of Figures 3 and 4 span the range of price implied to be likely, in coming weeks and months, by the actions of Market-Makers [MMs] as they commit firm capital required to be put at risk. Their commitments are needed to balance buyers and sellers when “filling” client block trade orders from big money fund portfolio managers.
The vertical forecast lines are split into upside and downside prospects by the heavy dot end-of-day market quote for the issue on the day of the forecast. A measure of the imbalance between up and down possible price change implications is the Range Index [RI], which tells what percent of the whole forecast range lies to the downside.
The “thumbnail” picture at the bottom of each figure displays where today’s RI relates to the RI experiences of the subject over the past 5 years. Positions to the left of the distribution’s peak are favorable, to the right may be not so.
Capital investment for near-term portfolio gain is favored for PC Connection, Inc. over Perficient, Inc., although their differences are arguable, as noted.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CNXN 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. First months of 2020 to date have produced over 4400 profitable position closeouts in a 75%/25% win-loss ratio. Evidences of how such prior forecasts have worked out are routinely provided in the SA blog of my name.