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6 Securities and Exchanges to Watch Amid Trading Volatility

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Compelling and expanded diversified product portfolio helps drive revenues of Zacks Securities and Exchanges  industry players. Increase in trading volumes and product expansion through prudent acquisitions are expected to benefit Intercontinental Exchange (ICE - Free Report) , Nasdaq (NDAQ - Free Report) , MarketAxess Holding (MKTX - Free Report) , Cboe Global Markets (CBOE - Free Report) , Deutsche Boerse AG (DBOEY - Free Report) and OTC Markets Group Inc. (OTCM - Free Report) .

However, alterations in investment patterns and priorities, and compliance with regulations pose challenges.


About the Industry

The Zacks Securities and Exchanges industry comprises companies that operate physical or electronic marketplaces, which facilitate the buying and selling of stocks, stock options, bonds or commodity contracts.

These companies generate revenues from fees received from the listed companies on their exchanges. Industry players also provide a range of data and listing services to global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions as well as corporate and ETF listing services on the cash equity exchanges of the industry players.


3 Trends Shaping the Future of Securities and Exchanges Industry

Volatility fuels trading volume:   The players in the industry are largely dependent on product and service portfolios for revenues. Major services include trade execution, clearing, settlement services for securities and commodity contracts, listing services plus trading, and clearing systems services. Other revenue sources include data products, and financial indexes along with information and public company services. Maximization of transaction and clearing fees and lowering of transaction-based expenses drive profits. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players).

Mergers and acquisitions:  The industry continues to witness mergers and acquisitions as companies seek to evaluate opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These will enable them to penetrate untapped markets, provide new products or services and enhance the value of their platform and the existing trade-related operations. Additionally, strategic buyouts lead to a diversified product portfolio (the primary growth catalyst) and help industry participants to maintain their domestic market share as well as fortify global footprint.

Adoption of technology: Focus on building a strategic economic market model via technological advancements and upgrade of products and services will help all exchanges to stay afloat amid changing industry dynamics. In recent years, the players have launched a number of innovative technologies that rely on machine-learning, automation and algorithms designed to improve trading decisions while reducing trading inefficiencies, cyber threats and human errors.


Zacks Industry Rank Indicates Dull Prospects

The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #184, which places it in the bottom 28 of the 253 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects unfavorable near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have been losing confidence in this group’s earnings growth potential. Evidently, the industry’s earnings estimate for the current year has moved down 4.5% since May end.

Before we present a few securities and exchanges stocks worth considering for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.


Industry Outperforms Sector, Underperforms S&P 500

The Zacks Securities and Exchanges industry has outperformed the broader Zacks Finance sector but underperformed the Zacks S&P 500 composite over the past year. The industry has lost 0.8% compared with the broader sector’s decline of 6.2%. The Zacks S&P 500 composite has gained 13.9% in the said time frame.


One-Year Price Performance


Industry’s Current Valuation

On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing finance stocks, the industry is currently trading at 3.11X compared with the S&P 500’s 6.04X and the sector’s 2.88X.

Over the last five years, the industry has traded as high as 3.54X, as low as 1.82X and at the median of 2.75X as the chart below shows.


Price-to-Book (P/B) Ratio (TTM)


Price-to-Book (P/B) Ratio (TTM)

6 Securities and Exchanges Stocks to Keep an Eye on

We are presenting one Zacks Rank #2 (Buy) stock from the Securities and Exchanges industry. We are also presenting five stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MarketAxess Holdings: This New York-domiciled leading multi-dealer trading platform provides institutional investors with access to global liquidity in products like U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, credit derivatives, and other fixed-income securities. It carries a Zacks Rank of 2.

The Zacks Consensus Estimate for 2020 EPS indicates a rise of 42.6% and nearly 7.4% increase for 2021 from the year-ago figure. It came up with a four-quarter average surprise of 2.71%. The consensus estimate for 2020 and 2021 has risen 1.7% and 3.6%, respectively, in the past 30 days.


Price and Consensus: MKTX    
 

Nasdaq: Headquartered in New York, Nasdaq is a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services. It carries a Zacks Rank of 3.

The Zacks Consensus Estimate for 2020 EPS indicates a rise of 21.2% while that for 2021 implies 1.8% increase from the year-ago figure. It came up with a four-quarter average surprise of 4.19%. The consensus estimate for 2020 and 2021 has risen 0.3% and 1.3%, respectively in the past 30 days.


Price and Consensus: NDAQ

Cboe Global Markets: Based in Chicago, IL, this Zacks Rank #3 company is one of the largest stock exchange operators by volume in the United States and a leading market globally for ETP trading. It carries a Zacks Rank of 3.

The Zacks Consensus Estimate for 2020 EPS indicates a rise of 9.9% and has risen 0.8% in the past 30 days. It came up with a four-quarter average surprise of 6.17%.


Price and Consensus: CBOE

Intercontinental Exchange: This Zacks Rank #3 leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets is based in Atlanta, GA.

The Zacks Consensus Estimate for 2020 EPS indicates a rise of 14.7% while that for 2021 projects 6.7% increase from the year-ago figure. It came up with a four-quarter average surprise of 2.75%. The expected long-term earnings growth is pegged at 11.1%, better than the industry average of 7.1%. The consensus estimate for 2020 and 2021 has risen 0.9% each in the past 30 days.


Price and Consensus: ICE


 

Deutsche Börse AG: Headquartered in Eschborn, Germany, Deutsche Börse AG operates as an exchange organization in Europe, the United States, and the Asia-Pacific. It carries a Zacks Rank of 3.

The Zacks Consensus Estimate for 2020 EPS indicates a rise of 10.3% while that for 2021 projects 9.3% increase from the year-ago figure. The consensus estimate for 2020 and 2021 has risen 27% and 6.5%, respectively in the past 60 days.


Price and Consensus: DBOEY


 

OTC Markets Group: This Zacks Rank #3 company engages in the financial market business in the United States and internationally and is headquartered in New York, NY.

The Zacks Consensus Estimate for 2020 EPS indicates a rise of 6.4% while that for 2021 projects 4.1% increase from the year-ago figure. It came up with a four-quarter average surprise of 2.75%. The expected long-term earnings growth rate is pegged at 9%, better than the industry average of 7.1%.


Price and Consensus: OTCM

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.%20%20However,%20alterations%20in%20investment%20patterns%20and%20priorities,%20and%20compliance%20with%20regulations%20pose%20challenges.%20%20About%20the%20Industry%20%20The%20Zacks%20Securities%20and%20Exchanges%20industry%20comprises%20companies%20that%20operate%20physical%20or%20electronic%20marketplaces,%20which%20facilitate%20the%20buying%20and%20selling%20of%20stocks,%20stock%20options,%20bonds%20or%20commodity%20contracts.%20%20These%20companies%20generate%20revenues%20from%20fees%20received%20from%20the%20listed%20companies%20on%20their%20exchanges.%20Industry%20players%20also%20provide%20a%20range%20of%20data%20and%20listing%20services%20to%20global%20financial%20and%20commodity%20markets,%20including%20pricing%20and%20reference%20data,%20exchange%20data,%20analytics,%20feeds,%20index%20services,%20desktops%20and%20connectivity%20solutions%20as%20well%20as%20corporate%20and%20ETF%20listing%20services%20on%20the%20cash%20equity%20exchanges%20of%20the%20industry%20players.%20%203%20Trends%20Shaping%20the%20Future%20of%20Securities%20and%20Exchanges%20Industry%20%20Volatility%20fuels%20trading%20volume:%20%20%20The%20players%20in%20the%20industry%20are%20largely%20dependent%20on%20product%20and%20service%20portfolios%20for%20revenues.%20Major%20services%20include%20trade%20execution,%20clearing,%20settlement%20services%20for%20securities%20and%20commodity%20contracts,%20listing%20services%20plus%20trading,%20and%20clearing%20systems%20services.%20Other%20revenue%20sources%20include%20data%20products,%20and%20financial%20indexes%20along%20with%20information%20and%20public%20company%20services.%20Maximization%20of%20transaction%20and%20clearing%20fees%20and%20lowering%20of%20transaction-based%20expenses%20drive%20profits.%20Sustainable%20trading%20volume%20growth,%20driven%20by%20trading%20volatility,%20fuels%20transaction%20and%20clearing%20fees%20(a%20major%20component%20of%20the%20top%20line%20of%20industry%20players).%20%20%20Mergers%20and%20acquisitions:%20%20The%20industry%20continues%20to%20witness%20mergers%20and%20acquisitions%20as%20companies%20seek%20to%20evaluate%20opportunities%20to%20supplement%20their%20internal%20growth%20story%20by%20forging%20strategic%20alliances%20or%20acquiring%20businesses%20or%20technologies.%20These%20will%20enable%20them%20to%20penetrate%20untapped%20markets,%20provide%20new%20products%20or%20services%20and%20enhance%20the%20value%20of%20their%20platform%20and%20the%20existing%20trade-related%20operations.%20Additionally,%20strategic%20buyouts%20lead%20to%20a%20diversified%20product%20portfolio%20(the%20primary%20growth%20catalyst)%20and%20help%20industry%20participants%20to%20maintain%20their%20domestic%20market%20share%20as%20well%20as%20fortify%20global%20footprint.%20%20Adoption%20of%20technology:%20Focus%20on%20building%20a%20strategic%20economic%20market%20model%20via%20technological%20advancements%20and%20upgrade%20of%20products%20and%20services%20will%20help%20all%20exchanges%20to%20stay%20afloat%20amid%20changing%20industry%20dynamics.%20In%20recent%20years,%20the%20players%20have%20launched%20a%20number%20of%20innovative%20technologies%20that%20rely%20on%20machine-learning,%20automation%20and%20algorithms%20designed%20to%20improve%20trading%20decisions%20while%20reducing%20trading%20inefficiencies,%20cyber%20threats%20and%20human%20errors.%20%20Zacks%20Industry%20Rank%20Indicates%20Dull%20Prospects%20%20The%20Zacks%20Securities%20and%20Exchanges%20industry%20is%20housed%20within%20the%20broader%20Zacks%20Finance%20sector.%20It%20carries%20a%20Zacks%20Industry%20Rank%20#184,%20which%20places%20it%20in%20the%20bottom%2028%20of%20the%20253%20Zacks%20industries.%20%20The%20group???s%20Zacks%20Industry%20Rank,%20which%20is%20basically%20the%20average%20of%20the%20Zacks%20Rank%20of%20all%20the%20member%20stocks,%20reflects%20unfavorable%20near-term%20prospects.%20Our%20research%20shows%20that%20the%20top%2050%%20of%20the%20Zacks-ranked%20industries%20outperforms%20the%20bottom%2050%%20by%20a%20factor%20of%20more%20than%202%20to%201.%20%20The%20industry???s%20positioning%20in%20the%20bottom%2050%%20of%20the%20Zacks-ranked%20industries%20is%20a%20result%20of%20a%20negative%20earnings%20outlook%20for%20the%20constituent%20companies%20in%20aggregate.%20Looking%20at%20the%20aggregate%20earnings%20estimate%20revisions,%20it%20appears%20that%20analysts%20have%20been%20losing%20confidence%20in%20this%20group???s%20earnings%20growth%20potential.%20Evidently,%20the%20industry???s%20earnings%20estimate%20for%20the%20current%20year%20has%20moved%20down%204.5%%20since%20May%20end.%20%20Before%20we%20present%20a%20few%20securities%20and%20exchanges%20stocks%20worth%20considering%20for%20your%20portfolio,%20let???s%20take%20a%20look%20at%20the%20industry???s%20recent%20stock-market%20performance%20and%20valuation%20picture.%20%20Industry%20Outperforms%20Sector,%20Underperforms%20S&P%20500%20%20The%20Zacks%20Securities%20and%20Exchanges%20industry%20has%20outperformed%20the%20broader%20Zacks%20Finance%20sector%20but%20underperformed%20the%20Zacks%20S&P%20500%20composite%20over%20the%20past%20year.%20The%20industry%20has%20lost%200.8%%20compared%20with%20the%20broader%20sector???s%20decline%20of%206.2%.%20The%20Zacks%20S&P%20500%20composite%20has%20gained%2013.9%%20in%20the%20said%20time%20frame.%20%20Industry???s%20Current%20Valuation%20%20On%20the%20basis%20of%20trailing%2012-month%20price-to-book%20(P/B),%20which%20is%20commonly%20used%20for%20valuing%20finance%20stocks,%20the%20industry%20is%20currently%20trading%20at%203.11X%20compared%20with%20the%20S&P%20500???s%206.04X%20and%20the%20sector???s%202.88X.%20%20Over%20the%20last%20five%20years,%20the%20industry%20has%20traded%20as%20high%20as%203.54X,%20as%20low%20as%201.82X%20and%20at%20the%20median%20of%202.75X%20as%20the%20chart%20below%20shows.%20%20Price-to-Book%20(P/B)%20Ratio%20(TTM)%20%20Price-to-Book%20(P/B)%20Ratio%20(TTM)%20%206%20Securities%20and%20Exchanges%20Stocks%20to%20Keep%20an%20Eye%20on%20%20We%20are%20presenting%20one%20Zacks%20Rank%20#2%20(Buy)%20stock%20from%20the%20Securities%20and%20Exchanges%20industry.%20We%20are%20also%20presenting%20five%20stocks%20with%20a%20Zacks%20Rank%20#3%20(Hold)%20from%20the%20same%20industry.%20You%20can%20see%20the%20complete%20list%20of%20today???s%20Zacks%20#1%20Rank%20(Strong%20Buy)%20stocks%20here.%20%20MarketAxess%20Holdings:%20This%20New%20York-domiciled%20leading%20multi-dealer%20trading%20platform%20provides%20institutional%20investors%20with%20access%20to%20global%20liquidity%20in%20products%20like%20U.S.%20high-grade%20corporate%20bonds,%20emerging%20markets%20and%20high-yield%20bonds,%20European%20bonds,%20U.S.%20agency%20bonds,%20credit%20derivatives,%20and%20other%20fixed-income%20securities.%20It%20carries%20a%20Zacks%20Rank%20of%202.%20%20The%20Zacks%20Consensus%20Estimate%20for%202020%20EPS%20indicates%20a%20rise%20of%2042.6%%20and%20nearly%207.4%%20increase%20for%202021%20from%20the%20year-ago%20figure.%20It%20came%20up%20with%20a%20four-quarter%20average%20surprise%20of%202.71%.%20The%20consensus%20estimate%20for%202020%20and%202021%20has%20risen%201.7%%20and%203.6%,%20respectively,%20in%20the%20past%2030%20days.%20%20Price%20and%20Consensus:%20MKTX%20%20Nasdaq:%20Headquartered%20in%20New%20York,%20Nasdaq%20is%20a%20leading%20provider%20of%20trading,%20clearing,%20marketplace%20technology,%20regulatory,%20securities%20listing,%20information%20and%20public%20and%20private%20company%20services.%20It%20carries%20a%20Zacks%20Rank%20of%203.%20%20The%20Zacks%20Consensus%20Estimate%20for%202020%20EPS%20indicates%20a%20rise%20of%2021.2%%20while%20that%20for%202021%20implies%201.8%%20increase%20from%20the%20year-ago%20figure.%20It%20came%20up%20with%20a%20four-quarter%20average%20surprise%20of%204.19%.%20The%20consensus%20estimate%20for%202020%20and%202021%20has%20risen%200.3%%20and%201.3%,%20respectively%20in%20the%20past%2030%20days.%20%20Price%20and%20Consensus:%20NDAQ%20%20Cboe%20Global%20Markets:%20Based%20in%20Chicago,%20IL,%20this%20Zacks%20Rank%20#3%20company%20is%20one%20of%20the%20largest%20stock%20exchange%20operators%20by%20volume%20in%20the%20United%20States%20and%20a%20leading%20market%20globally%20for%20ETP%20trading.%20It%20carries%20a%20Zacks%20Rank%20of%203.%20%20The%20Zacks%20Consensus%20Estimate%20for%202020%20EPS%20indicates%20a%20rise%20of%209.9%%20and%20has%20risen%200.8%%20in%20the%20past%2030%20days.%20It%20came%20up%20with%20a%20four-quarter%20average%20surprise%20of%206.17%.%20%20%20Price%20and%20Consensus:%20CBOE%20%20Intercontinental%20Exchange:%20This%20Zacks%20Rank%20#3%20leading%20global%20operator%20of%20regulated%20exchanges,%20clearing%20houses%20and%20listings%20venues,%20and%20a%20provider%20of%20data%20services%20for%20commodity,%20financial,%20fixed%20income%20and%20equity%20markets%20is%20based%20in%20Atlanta,%20GA.%20%20The%20Zacks%20Consensus%20Estimate%20for%202020%20EPS%20indicates%20a%20rise%20of%2014.7%%20while%20that%20for%202021%20projects%206.7%%20increase%20from%20the%20year-ago%20figure.%20It%20came%20up%20with%20a%20four-quarter%20average%20surprise%20of%202.75%.%20The%20expected%20long-term%20earnings%20growth%20is%20pegged%20at%2011.1%,%20better%20than%20the%20industry%20average%20of%207.1%.%20The%20consensus%20estimate%20for%202020%20and%202021%20has%20risen%200.9%%20each%20in%20the%20past%2030%20days.%20%20Price%20and%20Consensus:%20ICE%20%20Deutsche%20B??rse%20AG:%20Headquartered%20in%20Eschborn,%20Germany,%20Deutsche%20B??rse%20AG%20operates%20as%20an%20exchange%20organization%20in%20Europe,%20the%20United%20States,%20and%20the%20Asia-Pacific.%20It%20carries%20a%20Zacks%20Rank%20of%203.%20%20The%20Zacks%20Consensus%20Estimate%20for%202020%20EPS%20indicates%20a%20rise%20of%2010.3%%20while%20that%20for%202021%20projects%209.3%%20increase%20from%20the%20year-ago%20figure.%20The%20consensus%20estimate%20for%202020%20and%202021%20has%20risen%2027%%20and%206.5%,%20respectively%20in%20the%20past%2060%20days.%20%20Price%20and%20Consensus:%20DBOEY%20%20OTC%20Markets%20Group:%20This%20Zacks%20Rank%20#3%20company%20engages%20in%20the%20financial%20market%20business%20in%20the%20United%20States%20and%20internationally%20and%20is%20headquartered%20in%20New%20York,%20NY.%20%20The%20Zacks%20Consensus%20Estimate%20for%202020%20EPS%20indicates%20a%20rise%20of%206.4%%20while%20that%20for%202021%20projects%204.1%%20increase%20from%20the%20year-ago%20figure.%20It%20came%20up%20with%20a%20four-quarter%20average%20surprise%20of%202.75%.%20The%20expected%20long-term%20earnings%20growth%20rate%20is%20pegged%20at%209%,%20better%20than%20the%20industry%20average%20of%207.1%.%20%20%20Price%20and%20Consensus:%20OTCM%20%20Biggest%20Tech%20Breakthrough%20in%20a%20Generation%20%20Be%20among%20the%20early%20investors%20in%20the%20new%20type%20of%20device%20that%20experts%20say%20could%20impact%20society%20as%20much%20as%20the%20discovery%20of%20electricity.%20Current%20technology%20will%20soon%20be%20outdated%20and%20replaced%20by%20these%20new%20devices.%20In%20the%20process,%20it???s%20expected%20to%20create%2022%20million%20jobs%20and%20generate%20%2412.3%20trillion%20in%20activity.%20%20%20A%20select%20few%20stocks%20could%20skyrocket%20the%20most%20as%20rollout%20accelerates%20for%20this%20new%20tech.%20Early%20investors%20could%20see%20gains%20similar%20to%20buying%20Microsoft%20in%20the%201990s.%20Zacks???%20just-released%20special%20report%20reveals%208%20stocks%20to%20watch.%20The%20report%20is%20only%20available%20for%20a%20limited%20time.%20%20%20See%208%20breakthrough%20stocks%20now>>%20"> 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