It’s a bit surprising that capital markets stocks don’t attract more attention from investors and traders, especially given that these companies offer exchange marketplaces where financial securities can be bought and sold.
Along with providing a way for traders to buy and sell things like stocks and bonds, capital markets companies enable businesses to raise financial capital to grow and play a huge role in the global financial system. Most capital markets providers generate revenue from transaction fees and market data, which means they have plenty of earnings upside given how important these markets are for the world’s economy.
Although trading activity has slowed down a bit from its torrid pace in 2020, capital markets stocks have been some of the strongest performers in the market this year as major indices continue grinding to new highs.
Since these stocks fly under the radar for a lot of investors, we’ve provided a brief overview of some of the most attractive names in the sector to consider. Let’s take a look at 3 capital markets stocks to capitalize on now.
1. Cboe Global Markets
If you have ever generated a profit by trading options contracts, you likely have this large options exchange operator to thank for helping to facilitate the transaction. Cboe Global Markets is one of the world’s largest exchange holding companies and is the largest options exchange in the United States with roughly 40% market share.
Cboe Global Markets (NYSE:CBOE) offers trading in options, futures, U.S. and European Equities, exchange-traded products, global foreign exchange, and multi-asset volatility products based on the VIX index.
This capital markets stock has been a very strong performer in 2021 and rallied over 35% year-to-date. If you think that volatility could be on the horizon, it might be a great stock to consider given that increasing trading volumes would translate to more revenue for the company. Keep in mind that CBOE has some of the most popular proprietary products in the trading world including SPX options and VIX options, which is a big competitive advantage.
Finally, the fact that the company’s net revenue grew by 18% in Q2 to reach $351 million and that its management recently increased the company's 2021 full-year non-transaction organic revenue growth target, make it one of the more attractive stocks in capital markets to consider.
2. Nasdaq, Inc.
While it might be hard to wrap your head around the fact that Nasdaq (NASDAQ:NDAQ) stock trades on the NASDAQ exchange, this is certainly one of the premier capital markets stocks to consider adding for the long-term.
The company is a leading provider of trading, clearing, exchange technology, securities listing, data, and analytics and is currently benefitting from a hot IPO market and strong trading volumes. There’s also a lot for investors to like about the company’s index business thanks to the massive amount of capital that continues to flow into ETFs.
NASDAQ reported strong Q2 earnings back in July including GAAP diluted earnings per share of $2.05, up 41% year-over-year, on net revenues of $846 million, up 21% year-over-year.
The company also completed the acquisition of Verafin earlier this year, which is a pioneer in anti-financial crime management solutions. The move expands NASDAQ’s business offerings and could be a nice growth driver for the company going forward.
In a world where data is considered to be digital gold, a company that offers in-depth market data like this one really stands out.
3. UBS Group AG (SIX:UBSG)
With UBS Group AG (NYSE:UBS), investors have an opportunity to own one of the best Swiss banks and a true leader in wealth management. The company operates under five business divisions including wealth management, wealth management Americas, personal & corporate banking, asset management, and the investment bank. It’s a diversified business model that offers exposure to capital markets at a very attractive valuation, and income investors will love the 3.95% dividend yield that the stock provides.
UBS Group impressed in Q2 by reporting a net profit of $2 billion, up 67% year-over-year, and is seeing strong growth in its wealth management business, which received $25 billion of inflows during the quarter.
The company is also seeing a nice increase in recurring fee income and should continue to benefit from the growing number of high-net-worth individuals seeking wealth management services in emerging markets. The bottom line here is that UBS Group is a fantastic addition to any portfolio given the company’s trusted brand name and extremely profitable business model.