Let’s Play Two! Accenture (ACN) & Facebook (FB)

“It’s a beautiful day. Let’s play two!” – Ernie Banks, July 1969

For many on Wall Street, today marks a return to the office after a couple weeks off, or at least a slower and less stressful end to an interesting 2014. With last year now in the rear view mirror, we have a fresh start and grand new goals for 2015. At EidoSearch, our goal in Finance is simple. To integrate better return probabilities into the workflow of every institutional investor.

Although we’re a bit out of season for a baseball quote, we wanted to share Ernie Banks type enthusiasm for the year ahead by providing a market call with the theme, “Let’s play two!”. In investor speak, that’s a pairs trade idea through our unique approach; predictive analytics via historical return distributions.

We looked at large cap U.S. stocks to find some outliers that have very positive return and volatility probabilities for the next month, and similarly some that have outsized downside in the coming month. We found two tech stocks, Accenture (ACN) and Facebook (FB), that have compelling return probabilities.

Accenture was flat for most of 2014, but had a good Q1 announcement in December and finished up 10.1% for the year. This was not dramatic underperformance, but they trailed the S&P for the year by a couple percentage points. We looked at they’re 3 month price pattern and found 91 technology stocks historically with a very similar price trend and trajectory. The average return in the next 1 month was 7.9%, with 17 times the upside to the downside and 85% probability the stock will be above $87.59 in 1 month.

Facebook on the other hand was up 43% for the year. We found 66 similar historical instances of their current 3 month price trend, and the average return is -1.4% with more than 2 times the downside to upside. Stocks with this pattern have been down in the next one month 62.1% of the time (relative to the market), and there’s 85% probability the stock will be below $83.02 in one month.

Happy New Year!