Due to the coronavirus, the Fed’s aggressive interventions, and the federal stimulus checks, there’s been an explosion of trading in the financial markets.
For companies that run financial exchanges, this is translating into increased earnings and revenue…
There’s a number of uncertainties that will keep the market’s volatility elevated this year, such as: a the discovery of a vaccine, the continued spread of the coronavirus, the November elections, and unemployment.
Here are three stocks which are positioned to benefit from increased market volatility:
Nasdaq, Inc. (NDAQ)
NDAQ is a global technology company that serves capital markets by providing security listing information, exchange technology, trading and regulatory services worldwide. Increased volatility leads to higher trading volumes, so NDAQ has benefited from this due to its equity derivative trading and clearing, cash equity trading, fixed income and commodities trading and clearing, and trade management service businesses.
In the first half of this year, NDAQ raised $17.4 billion from 69 IPOs. Additionally, five companies switched from NYSE to NDAQ representing a total of $9.1 billion in market value. The NDAQ June 2020 volumes are higher as compared to the previous year in equity derivatives and cash equities which bodes well for its revenues.
Moreover, with a beta of 0.75, NDAQ is less volatile relative to the rest of the market. The volatility of Nasdaq’s share price is greater than that of just 5.26% US stocks with at least 200 days of trading history.
The stock has been rising since hitting its 52-week low of $71.66 on March 23rd due to the coronavirus-led market crash and gained close to 80% so far. This momentum might continue as the markets are expected to remain volatile given the number of uncertainties. Further, stock trading has become very popular over the past years as retail traders are flooding the market.
In the first quarter, NDAQ’s net revenue increased 11% year over year. The market expects the company to report EPS of $1.44 for the quarter, which indicates an 18% increase over the year-ago number. NDAQ’s earnings surprise history looks impressive as well with the company beating consensus EPS estimates in each of the trailing four quarters.
How does NDAQ stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
You can’t ask for better. The stock is also ranked #1 out of 5 stocks in the Financial Marketplaces industry.
MarketAxess Holdings, Inc. (MKTX)
It seems anachronistic but most bond trading is still done over the phone. Buyers call a dealer who gives them a bid and ask. MKTX is modernizing this by creating a trading platform and is taking more market share every year. MKTX was created by a consortium of banks to create more liquidity and transparency for bond trading and lower transaction costs.
MKTX also enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide. MKTX has also directly benefited from the recent market volatility which led to a spike in volume for all sorts of fixed-income assets.
For the first quarter of this year, MKTX’s revenue was up 36%, operating income was up 44% and EPS was up 41% year over year. The company also achieved record credit trading volume of $659.7 billion and record open trading volume of $206.8 billion in the quarter. The monthly trading volume of MKTX for June was $578.5 billion which reflects an increase of 216.4% year over year. The company recently announced the launch of Dealer Direct, a tool which supports bi-lateral trade negotiation by providing dealers with improved streaming functionality. This should further boost the company’s growth.
On the other hand, MKTX has a beta of 0.63 which shows that it is less volatile as compared to the market. MKTX’s stock has gained more than 90% since hitting its 52-week low in mid-March due to the overall dip in the market. This strong momentum could last well for the rest of 2020 as the uncertainty is expected to continue.
The consensus EPS estimates for MKTX’s quarter ended June of $2.12 reflects a year-over-year improvement of 66.9%. The consensus revenue estimate for the same period indicates an increase 44.5% over the year-ago number. Moreover, you should note that the company beat the consensus EPS estimates in three of the trailing four quarters.
It’s no surprise that MKTX is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. In the 5-stock Financial Marketplaces group, it is ranked #2.
Intercontinental Exchange Inc. (ICE)
ICE operates regulated exchanges, clearing houses, and listing venues for commodity, financial, fixed income, and equity markets in the United States, the United Kingdom, European Union, Singapore, Israel, and Canada. Similar to NDAQ and MKTX, the market volatility caused by the political and health uncertainties has been boosting ICE’s bottom and top-line.
In the first quarter, ICE’s revenue was up 23% and adjusted EPS was up 39% year over year. The unforeseen circumstances in the credit market could increase volumes for credit derivatives and credit default swaps. Moreover, ICE ETF Hub had record notional volume of $148 billion in the second quarter of 2020, up 9% from $137 billion in the first quarter. Moreover, ICE Data Services has collaborated with Bondlink to provide a real-time cloud based market data dashboard which will help expand its solutions in the fixed income markets.
On the stability front, with a beta of 0.54, ICE is more volatile than just 1.26% of stocks we’re observing on Stocknews.com.
ICE added more than 45% to its stock price since hitting its 52-week low of $63.51 on March 23rd. The consensus revenue estimate of $1.39 billion for the quarter ended June 2020 indicates a year-over-year increase of 6.8%. The market also expects ICE’s EPS for the quarter to grow 9.6% year over year to $1.03. ICE has an impressive earnings surprise history as well with the company beating the consensus EPS estimates in three of the trailing four quarters.
ICE’s POWR Ratings reflect a promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade and a “B” for Buy & Hold Grade and Industry Rank. Among the 5 stocks in the Financial Marketplaces group, it’s ranked #3.