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5 Securities and Exchanges Stocks to Gain From Trading Volatility
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A compelling and diversified product portfolio helps drive revenues of Zacks Securities and Exchanges industry players. An increase in trading volumes, product expansion through prudent acquisitions and the increased adoption of a greater number of crypto assets are expected to benefit Intercontinental Exchange (ICE - Free Report) , CME Group (CME - Free Report) , Coinbase Global Inc. (COIN - Free Report) , Nasdaq (NDAQ - Free Report) , and Cboe Global Markets (CBOE - Free Report) . Increased focus on accelerating their non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profile of the industry players. 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 electronic marketplaces, which facilitate the buying and selling of stocks, stock options, and bonds or commodity contracts. They facilitate trading across a diverse range of products in multiple asset classes and geographies. They generate revenues from fees received from the listed companies on their exchanges. They 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, investments, risk management, desktops, and connectivity solutions, as well as corporate and ETF listing services, on the cash equity exchanges of the industry players. The industry is witnessing increased adoption of crypto assets. Yet, industry players have to comply with a number of regulations.
3 Trends Shaping the Future of the Securities and Exchanges Industry
Volatility Fueling 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. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players). The maximization of transaction and clearing fees and the lowering of transaction-based expenses drive profits. Other revenue sources include data products and financial indexes along with information and public company services. Increasing focus on accelerating the non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profiles of the industry participants.
Mergers and Acquisitions: The industry continues to witness mergers and acquisitions, with companies evaluating opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These enable them to penetrate untapped markets, offer new products or services and enhance the value of their platforms and existing trade-related operations. Additionally, strategic buyouts lead to a diversified product portfolio (the primary growth catalyst) and help industry participants maintain their domestic market share, as well as fortify their global footprint. Also, exchanges are pursuing consolidations and mergers with technological, legal, and competitive changes, per Deloitte.
Continuous Investment in Technology: Industry players continue to invest heavily in technological development. Focus on building a strategic economic market model via technological advancements and upgrades of products and services will help all exchanges 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, thus accelerating trading frequency. Players are also investing in automating non-trading operations that play an important part in revenue generation for the companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #65, which places it in the top 26% 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 encouraging 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have been gaining confidence in this group’s earnings growth potential. Estimates for the current year rose 12.9% in a year.
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 and S&P 500
The Zacks Securities and Exchanges industry has outperformed the broader Zacks Finance sector as well as the Zacks S&P 500 Composite over the past year. The industry has gained 31.6% compared with the broader sector and the Zacks S&P 500 Composite’s increase of 8.2% 24.9%, respectively, 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 3.8X compared with the S&P 500’s 6.44X and the sector’s 3.37X.
Over the last five years, the industry has traded as high as 3.91X, as low as 2.77X and at the median of 3.02X, as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
5 Securities and Exchanges Stocks to Keep an Eye on
Coinbase Global: Wilmington, DE-based Coinbase, sporting a Zacks Rank #1, provides financial infrastructure and technology for the crypto economy in the United States and internationally. Coinbase Global is likely to gain from increased adoption of a greater number of crypto assets, higher volatility and a rise in interest across the entire crypto economy. An increase in both the average crypto asset prices and total crypto spot market volumes will drive the overall trading volume of COIN.
The Zacks Consensus Estimate for the company’s 2024 EPS indicates a rise of 354.1% from the year-ago reported figure. The Zacks Consensus Estimate for 2024 and 2025 EPS rose 66.3% and 322.6% north, respectively, in the last 30 days. It came up with a four-quarter average surprise of 377.6%.
Price and Consensus: COIN
Intercontinental Exchange: Atlanta, GA-based Intercontinental Exchange is a 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. A compelling portfolio, expansive risk-management services, strategic buyouts, solid balance sheet bode well for this Zacks Rank #3, which is the second-largest global fixed-income provider. ICE, with the largest mortgage network across the United States, remains well poised to benefit from accelerated digitization in the U.S. residential mortgage industry.
The Zacks Consensus Estimate for the company’s 2024 and 2025 EPS indicates a year-over-year rise of 5.5% and 11.2%, respectively. It came up with a four-quarter average earnings surprise of 3.12%. The expected long-term earnings growth is pegged at 10.5%, better than the industry’s average of 8.8%.
Price and Consensus: ICE
Cboe Global Markets: Based in Chicago, IL, Cboe Global, currently carrying Zacks Rank #3, is one of the largest stock exchange operators by volume in the United States and globally for ETP trading. The company is poised for growth, given an expanding product line across asset classes, broadening geographic reach and a diversifying business mix with recurring revenues and technology.
The Zacks Consensus Estimate for the company’s 2023 and 2024 EPS indicates year-over-year increases of 6.9% and 6.4%, respectively. The expected long-term earnings growth is pegged at 13.6%, better than the industry’s average of 8.8%. It came up with a four-quarter average surprise of 4.14%. The consensus mark for 2024 and 2025 has moved 4 cents and 5 cents north, respectively, in the last 30 days.
Price and Consensus: CBOE
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. Its strategy of accelerating its non-trading revenue base, successfully maximizing opportunities as a technology and analytics provider, and growing core marketplace businesses, as well as intensifying its focus on Market Technology and Information Services businesses, should continue to drive growth. NDAQ currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for 2024 and 2025 EPS increased 2 cents and 1 cent north, respectively, in the last 30 days. It came up with a four-quarter average earnings surprise of 3.38. The expected long-term earnings growth rate is pegged at 7.7%.
Price and Consensus: NDAQ
CME Group: Headquartered in Chicago, IL, CME Group boasts the largest futures exchange in the world in terms of trading volume as well as notional value traded. Efforts to expand futures products in emerging markets, non-transaction-related opportunities, OTC offerings, cross-selling through alliances, strong global presence and solid liquidity should drive this Zacks Rank #3 company’s growth.
The Zacks Consensus Estimate for the company’s 2024 and 20254 EPS indicates year-over-year increases of 2.9% and 1.2%, respectively. It came up with a four-quarter average earnings surprise of 3.75%. The expected long-term earnings growth rate is pegged at 4.6%.
Price and Consensus: CME
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5 Securities and Exchanges Stocks to Gain From Trading Volatility
A compelling and diversified product portfolio helps drive revenues of Zacks Securities and Exchanges industry players. An increase in trading volumes, product expansion through prudent acquisitions and the increased adoption of a greater number of crypto assets are expected to benefit Intercontinental Exchange (ICE - Free Report) , CME Group (CME - Free Report) , Coinbase Global Inc. (COIN - Free Report) , Nasdaq (NDAQ - Free Report) , and Cboe Global Markets (CBOE - Free Report) . Increased focus on accelerating their non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profile of the industry players. 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 electronic marketplaces, which facilitate the buying and selling of stocks, stock options, and bonds or commodity contracts. They facilitate trading across a diverse range of products in multiple asset classes and geographies. They generate revenues from fees received from the listed companies on their exchanges. They 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, investments, risk management, desktops, and connectivity solutions, as well as corporate and ETF listing services, on the cash equity exchanges of the industry players. The industry is witnessing increased adoption of crypto assets. Yet, industry players have to comply with a number of regulations.
3 Trends Shaping the Future of the Securities and Exchanges Industry
Volatility Fueling 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. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players). The maximization of transaction and clearing fees and the lowering of transaction-based expenses drive profits. Other revenue sources include data products and financial indexes along with information and public company services. Increasing focus on accelerating the non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profiles of the industry participants.
Mergers and Acquisitions: The industry continues to witness mergers and acquisitions, with companies evaluating opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These enable them to penetrate untapped markets, offer new products or services and enhance the value of their platforms and existing trade-related operations. Additionally, strategic buyouts lead to a diversified product portfolio (the primary growth catalyst) and help industry participants maintain their domestic market share, as well as fortify their global footprint. Also, exchanges are pursuing consolidations and mergers with technological, legal, and competitive changes, per Deloitte.
Continuous Investment in Technology: Industry players continue to invest heavily in technological development. Focus on building a strategic economic market model via technological advancements and upgrades of products and services will help all exchanges 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, thus accelerating trading frequency. Players are also investing in automating non-trading operations that play an important part in revenue generation for the companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #65, which places it in the top 26% 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 encouraging 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have been gaining confidence in this group’s earnings growth potential. Estimates for the current year rose 12.9% in a year.
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 and S&P 500
The Zacks Securities and Exchanges industry has outperformed the broader Zacks Finance sector as well as the Zacks S&P 500 Composite over the past year. The industry has gained 31.6% compared with the broader sector and the Zacks S&P 500 Composite’s increase of 8.2% 24.9%, respectively, in the said time frame.
One Year Price Performance
.jpg)
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 3.8X compared with the S&P 500’s 6.44X and the sector’s 3.37X.
Over the last five years, the industry has traded as high as 3.91X, as low as 2.77X and at the median of 3.02X, as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
.jpg)
5 Securities and Exchanges Stocks to Keep an Eye on
We are presenting one Zacks Rank #1 (Strong Buy) stock and four Zacks Rank #3 (Hold) stocks from the Securities and Exchanges industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Coinbase Global: Wilmington, DE-based Coinbase, sporting a Zacks Rank #1, provides financial infrastructure and technology for the crypto economy in the United States and internationally. Coinbase Global is likely to gain from increased adoption of a greater number of crypto assets, higher volatility and a rise in interest across the entire crypto economy. An increase in both the average crypto asset prices and total crypto spot market volumes will drive the overall trading volume of COIN.
The Zacks Consensus Estimate for the company’s 2024 EPS indicates a rise of 354.1% from the year-ago reported figure. The Zacks Consensus Estimate for 2024 and 2025 EPS rose 66.3% and 322.6% north, respectively, in the last 30 days. It came up with a four-quarter average surprise of 377.6%.
Price and Consensus: COIN
Intercontinental Exchange: Atlanta, GA-based Intercontinental Exchange is a 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. A compelling portfolio, expansive risk-management services, strategic buyouts, solid balance sheet bode well for this Zacks Rank #3, which is the second-largest global fixed-income provider. ICE, with the largest mortgage network across the United States, remains well poised to benefit from accelerated digitization in the U.S. residential mortgage industry.
The Zacks Consensus Estimate for the company’s 2024 and 2025 EPS indicates a year-over-year rise of 5.5% and 11.2%, respectively. It came up with a four-quarter average earnings surprise of 3.12%. The expected long-term earnings growth is pegged at 10.5%, better than the industry’s average of 8.8%.
Price and Consensus: ICE
Cboe Global Markets: Based in Chicago, IL, Cboe Global, currently carrying Zacks Rank #3, is one of the largest stock exchange operators by volume in the United States and globally for ETP trading. The company is poised for growth, given an expanding product line across asset classes, broadening geographic reach and a diversifying business mix with recurring revenues and technology.
The Zacks Consensus Estimate for the company’s 2023 and 2024 EPS indicates year-over-year increases of 6.9% and 6.4%, respectively. The expected long-term earnings growth is pegged at 13.6%, better than the industry’s average of 8.8%. It came up with a four-quarter average surprise of 4.14%. The consensus mark for 2024 and 2025 has moved 4 cents and 5 cents north, respectively, in the last 30 days.
Price and Consensus: CBOE
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. Its strategy of accelerating its non-trading revenue base, successfully maximizing opportunities as a technology and analytics provider, and growing core marketplace businesses, as well as intensifying its focus on Market Technology and Information Services businesses, should continue to drive growth. NDAQ currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for 2024 and 2025 EPS increased 2 cents and 1 cent north, respectively, in the last 30 days. It came up with a four-quarter average earnings surprise of 3.38. The expected long-term earnings growth rate is pegged at 7.7%.
Price and Consensus: NDAQ
CME Group: Headquartered in Chicago, IL, CME Group boasts the largest futures exchange in the world in terms of trading volume as well as notional value traded. Efforts to expand futures products in emerging markets, non-transaction-related opportunities, OTC offerings, cross-selling through alliances, strong global presence and solid liquidity should drive this Zacks Rank #3 company’s growth.
The Zacks Consensus Estimate for the company’s 2024 and 20254 EPS indicates year-over-year increases of 2.9% and 1.2%, respectively. It came up with a four-quarter average earnings surprise of 3.75%. The expected long-term earnings growth rate is pegged at 4.6%.
Price and Consensus: CME