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Securities and Exchanges Stock Outlook: Strong Growth Ahead
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The Zacks Securities and Exchanges industry comprises companies that operate as physical or electronic marketplaces, which in turn, help facilitate the buying and selling of stocks, stock options, bonds or commodity contracts.
Here are the industry’s three major themes:
Heavy reliance on diverse product offerings remains the primary catalyst for overall growth of the securities exchanges industry. Demand is boosted by investors’ optimism and interest of corporates to access public capital. The industry’s product innovation efforts have been helping it better cater to the derivatives industry’s demands and complement the core product lines. This in turn, has been aiding the key industry players to strengthen their market position and global reach.
The players in the Securities and Exchanges industry are largely dependent on product and service portfolios to churn out 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, financial indexes along with information and public company services. Every exchange’s profitability depends on the maximization of transaction and clearing fees while also maintaining lower transaction-based expenses. Sustainable trading volume growth will drive transaction and clearing fees (forming a major component of the top lines for companies operating in the industry). Per a global business intelligence leader IBISWorld’s report, revenues are estimated to increase through 2023.
Focus on building a strategic economic market model via technological advancements and an upgrade of a wide array of products and services will assist all exchanges to stay afloat amid the changing industry dynamics. Additionally, adherence to strategic buyouts has led to a diverse product menu, motivating industry participants to preserve their market share as well as fortify the global footprint.
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 #70, which places it at the top 28% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects favorable 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 at 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. Evidently, the industry’s consensus earnings for the current year have inched up 1.8% since September 2018.
Before we present a few securities and exchanges stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Securities and Exchanges industry has outperformed the Zacks S&P 500 composite and the broader Zacks Finance sector over the past year. The industry has rallied 14.1% compared with the S&P 500’s rise of 4.6% and the broader sector’s decline of 4.2%.
Industry’s Current Valuation
On the basis of trailing 12-month price-to-book (P/B) ratio, which is commonly used for valuing finance stocks, the industry is currently trading at 2.90X compared with the S&P 500’s 3.90X and the sector’s 2.51X.
Over the last five years, the industry has traded as high as 3.09X, as low as 1.14X and at the median of 2.10X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Bottom Line
A growing product portfolio is likely to steadily favor the industry’s performance. Increase in trading volumes, product expansion through prudent acquisitions and a lower tax are expected to provide a cushion as well. Moreover, strategic integrations play an instrumental role.
However, market volatility, alterations in investment patterns and priorities plus other economic conditions and factors that are beyond control pose challenges to the industry.
Cboe Global Markets, Inc. (CBOE - Free Report) : Headquartered in Chicago, the Zacks Consensus Estimate for 2019 EPS indicates year-over-year growth of 4.82%. The company has an estimated long-term earnings growth rate of 11.4%. It came up with average beat of 3.60% in the trailing four reported quarters.
Price and Consensus: CBOE
This apart, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may want to hold on to for the time being.
Nasdaq, Inc. (NDAQ - Free Report) : With respect to this New York-based company, the Zacks Consensus Estimate for 2019 EPS represents a year-over-year improvement of 5.79%. The company has an expected long-term earnings growth rate of 8%. The average earnings surprise is delivered at 1.70% in the last four reported quarters.
Price and Consensus: NDAQ
CME Group Inc. (CME - Free Report) : For this Chicago, IL-based company, the Zacks Consensus Estimate for 2019 EPS reflects a 7.7% year-over-year increase. The company has estimate projected long-term earnings growth rate of 11.2%. It pulled off average positive surprise of 1.41% for the preceding four reported quarters.
Price and Consensus: CME
MarketAxess Holdings Inc. (MKTX - Free Report) : For this New York-domiciled company, the Zacks Consensus Estimate for 2019 EPS depicts a year-over-year rise of 13.4%. The company has an estimated long-term earnings growth rate of 5%. It came up with average positive surprise of 5.23% in the previous four reported quarters.
Price and Consensus: MKTX
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Securities and Exchanges Stock Outlook: Strong Growth Ahead
The Zacks Securities and Exchanges industry comprises companies that operate as physical or electronic marketplaces, which in turn, help facilitate the buying and selling of stocks, stock options, bonds or commodity contracts.
Here are the industry’s three major themes:
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 #70, which places it at the top 28% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects favorable 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 at 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. Evidently, the industry’s consensus earnings for the current year have inched up 1.8% since September 2018.
Before we present a few securities and exchanges stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Securities and Exchanges industry has outperformed the Zacks S&P 500 composite and the broader Zacks Finance sector over the past year. The industry has rallied 14.1% compared with the S&P 500’s rise of 4.6% and the broader sector’s decline of 4.2%.
Industry’s Current Valuation
On the basis of trailing 12-month price-to-book (P/B) ratio, which is commonly used for valuing finance stocks, the industry is currently trading at 2.90X compared with the S&P 500’s 3.90X and the sector’s 2.51X.
Over the last five years, the industry has traded as high as 3.09X, as low as 1.14X and at the median of 2.10X as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Bottom Line
A growing product portfolio is likely to steadily favor the industry’s performance. Increase in trading volumes, product expansion through prudent acquisitions and a lower tax are expected to provide a cushion as well. Moreover, strategic integrations play an instrumental role.
However, market volatility, alterations in investment patterns and priorities plus other economic conditions and factors that are beyond control pose challenges to the industry.
The Zacks Securities and Exchanges space currently has just one stock carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cboe Global Markets, Inc. (CBOE - Free Report) : Headquartered in Chicago, the Zacks Consensus Estimate for 2019 EPS indicates year-over-year growth of 4.82%. The company has an estimated long-term earnings growth rate of 11.4%. It came up with average beat of 3.60% in the trailing four reported quarters.
Price and Consensus: CBOE
This apart, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may want to hold on to for the time being.
Nasdaq, Inc. (NDAQ - Free Report) : With respect to this New York-based company, the Zacks Consensus Estimate for 2019 EPS represents a year-over-year improvement of 5.79%. The company has an expected long-term earnings growth rate of 8%. The average earnings surprise is delivered at 1.70% in the last four reported quarters.
Price and Consensus: NDAQ
CME Group Inc. (CME - Free Report) : For this Chicago, IL-based company, the Zacks Consensus Estimate for 2019 EPS reflects a 7.7% year-over-year increase. The company has estimate projected long-term earnings growth rate of 11.2%. It pulled off average positive surprise of 1.41% for the preceding four reported quarters.
Price and Consensus: CME
MarketAxess Holdings Inc. (MKTX - Free Report) : For this New York-domiciled company, the Zacks Consensus Estimate for 2019 EPS depicts a year-over-year rise of 13.4%. The company has an estimated long-term earnings growth rate of 5%. It came up with average positive surprise of 5.23% in the previous four reported quarters.
Price and Consensus: MKTX
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>