Expeditors International: Best Nearby Cap-Gain Freight Forwarder Stock (NASDAQ:EXPD)

Investment Thesis

Expectations for stock prices by institutional investment organizations in managing their multi-billion-dollar stock portfolios require the negotiating help, and often temporary liquid capital assist, of Market-Makers [MMs] in the prompt, low-disturbance round-up of desired shares of identified promising companies.

MM risk-avoidance requirements continually drive derivative market prices, revealing in the limited-life legal contracts traded there the underlier stocks’ price-range extremes regarded likely by the well-informed sellers and buyers of the related risk protections. They are informed by over 100,000 world-wide wide-eyed, wide-eared MM employees on a 24x7x365 watch for change in competitive circumstances. Changes which get immediately communicated to the home-base trading desks.

Following an unchanging risk-minimizing portfolio management discipline, we keep records of how insightful the maintained intelligence flow has been on each of thousands of subject stocks over decades of daily observations. Those records provide the basis for making intelligent transactions about likely coming prices of specific securities, near-term.

Among the best potentials for price increases at this point in time is Expeditors International of Washington, Inc. (NASDAQ:EXPD), the primary focus of this article.

Company description

Expeditors International of Washington, Inc. provides logistics services in the Americas, North Asia, South Asia, Europe, the Middle East, Africa, and India. The company offers airfreight services, such as air freight consolidation and forwarding; ocean freight and ocean services, including ocean freight consolidation, direct ocean forwarding, and order management. Its customers include retailing and wholesaling, electronics, technology, and industrial and manufacturing companies. Expeditors International of Washington, Inc. was incorporated in 1979 and is headquartered in Seattle, Washington..”

Source: Yahoo Finance

The big picture: Risks vs. Rewards

Investment portfolio candidate competitors to EXPD include several companies in the Air Freight industry.

Figure 1

(used with permission)

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 draw-downs 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 are 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 draw-downs from positions that could have been taken following prior MM forecasts like today’s.

This map of price change potentials places better-tradeoff candidates in the directions of down and to the right. The “frontier” of currently most-capable stocks for near-term gains begins with a “market index” norm of the S&P 500 index ETF (SPY) at [7]. It continues with EXPD at [1], and CHRW at [6]. Our principal interest is in EXPD.

Those current 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

(used with permission)

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.

We then use market actions subsequent to the prior appearances of up-to-down balance prospects like those of this day.

[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. The buy-side risks actually encountered from prior forecasts like the present are in [F], as the most severe loss moments encountered 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 odds as loss weights for N-conditioned [E] and for [F], for a combined-return score [Q]. By using the typical position holding period [J] on [Q] we have a figure of merit [fom] ranking measure [R] useful in portfolio position preferencing. Figure 2 is row-ranked on R among candidate securities, with EXPD in top rank.

No other alternatives than EXPD have better raw Reward to Risk ratios (2.6 to 1) nor have stronger odds-weighted current stock price expectations. That is further evidenced in Compound Annual Growth Rates [K] of 78% for EXPD and only 9% for SPY.

On the same standards of comparison the only one of the alternative stocks approaching the 15.7 fom [R] of EXPD is GXO with an average gain of 7.7 bp/day.

Among the 20 best-ranked of all 3,053 of today’s MM price-range forecasts, their higher realized payoffs (13.6%), Win Odds (88 of 100) and holding periods (36 days) boost their average CAGRs to 187%. The overall MM-forecast population expectation of -8.4 shows how poor the overall expectation is for stocks at present.

Recent MM price-range forecast trends

The current week’s combined easing in market quotes and modes expansion of coming-price expectations provide EXPD with improved competitive investment comparisons to alternatives. Figure 3, unlike “technical analysis charts” shows daily forecasts of coming likely price ranges, rather than past actual days’ prices.

Those forecast price ranges are split into upside and downside prospects by the issue’s closing price of the current-day forecast. The Range Index tells what percentage of that range lies below the current market price. This clear definition of expected price risk in relation to prospective upside price for all stocks makes comparisons between alternative portfolio candidates much easier to evaluate than most nebulous references to “risk” when what may be being referred to is merely poorly-defined “uncertainty” of the future.

Figure 3

(used with permission)

The row of data between the two pictures of Figure 3 contains some key qualitative figures, also shown in Figure 2. They have to do with the actual market behavior of the stock in the 3 months following the “sample” forecasts of the past 5 years which had Risk-to-Reward balances like those of today, as indicated by the Range Index of 1.

That RI means the stock’s price is now right at the lowest price regarded as reasonable by the MM volume block-trade arrangers and the price-change-insurance speculators selling them protection for the short-stock temporary positions that must be taken to accomplish the trades their institutional clients want to get done at today’s prices.

The “thumbnail” lower picture in Figure 3 shows the distribution of the past 5 years of daily MM forecasts in terms of the market’s then current price quote for EXPD relative to its upper and lower limits. The current 1 indicates that only 1% of the full forecast range is to the downside, while the remaining 99% is to the upside, an extreme of that to the downside.

The frequency of the past 5 years’ daily Range Index value provides a clear visual idea of the odds for higher coming prices in coming weeks and months. That is also supported by the credible ratio comparing the average net capital gain of those 28 prior positions having RIs of 1 in forecasts like today’s upside prospect of +9.1%. Figure 2’s column [I] shows that to have been +9.1%, so the Cred ratio is 1.00, as good as can be expected.

Conclusion

Expeditors International of Washington, Inc., as seen by the market-making community, appears to be a currently highly attractive Air Transport stock for near-term capital gain among many leading competitors.