An increase in capital market activities amid the fast-paced U.S. economic recovery and a bullish stock market are spurring increased demand for investment banking and brokerage services.  And as the government continues to deliver  financial support to the markets, investment banking and financial services providers should benefit from increasing business activities that require their services. 

Indeed, the global investment banking market is expected to grow at a 8.4% CAGR to $111.45 billion in 2021. 

However, not all companies in this space are well positioned to capitalize on the industry tailwinds. With strong cash balance and fundamental strength, The Goldman Sachs Group, Inc. (GS) and Piper Sandler Companies (PIPR) could make the most of the current business environment. In contrast, Lazard Ltd (LAZ) and Cowen Inc. (COWN) don’t appear  to be in a position to similarly capitalize on the industry’s growth potential.

Stocks to buy:               

The Goldman Sachs Group, Inc. (GS)

GS is a leading global financial institution that offers financial services across investment banking, securities, investor management and consumer banking to corporates, financial institutions, governments and individuals.

In March, GS announced its commitment of an additional $500 million to its ‘Launch with GS’ initiative for the purpose of investing in diverse funds and businesses. Launch with GS has been beneficial so far and is expected to grow by fostering a community that will strengthen the pipeline of investment opportunities in diverse businesses.

The company’s net revenue increased 102% year-over-year to $17.70 billion for the first quarter, ended March 31,  while its net earnings grew 464% to $6.84 billion over the same period. The company’s EPS came in at $18.60, which was a 498% increase from its year-ago value. In fact, GS’ net revenues from  investment banking were $3.77 billion for the first quarter of 2021, 73% higher than the first quarter of 2020.

GS is expected to see 22.9% revenue growth  year-over-year to $11.98 billion in the current quarter, ending June 30, 2021. Its EPS is estimated to increase 1679.2% from its  year-ago value to $9.43 in the current quarter. GS’ stock has gained 106.9% over the past year.

GS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. GS has a B grade for Growth, Value and Sentiment. Among the 24 stocks in the A-rated Investment Brokerage industry, it is ranked #10.

Click here to see the additional POWR Ratings for GS (Momentum, Stability and Quality).

Piper Sandler Companies (PIPR)

Formerly known as Piper Jaffray Companies, PIPR is an investment bank and institutional securities firm that offers its services to corporations, private equity groups, public entities, non-profit entities, and institutional investors in the United States and internationally. It provides investment banking and institutional sales, trading, and research services for various equity and fixed-income products.

In January, the company completed the acquisition of TRS Advisors. TRS  will act as PIPR’s restructuring group and provide complex restructuring transactions in public, private, and government settings.

PIPR’s non-GAAP net revenue has increased 69% year-over-year to $413.75 million in the first quarter, ended March 31, 2021. Its net income increased 197% from its  year-ago value to $75.48 million. The company’s operating income rose 254% year-over-year to $102.74 million. Its EPS came in at $4.13, compared to $1.48 in the first quarter of 2020.

A $11.82 consensus estimate for 2021 indicates an 18% improvement year-over-year. The $1.41 billion consensus revenue estimate  for the current year indicates a 14% increase year-over-year. PIPR’s stock has gained 141.3% over the past year.

PIPR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating , which equates to Strong Buy in our proprietary ratings system. PIPR has a B grade for Growth, Value, Sentiment and Quality. In the same industry, it is ranked #3.

In total, we rate PIPR on eight different components. Beyond what we stated above we have also given PIPR grades for Momentum and Stability. Get the rating here.

Stocks to hold:

Lazard Ltd (LAZ)

Founded in 1848, LAZ operates as a financial advisory and asset management firm. Its Financial Advisory segment offers various services regarding mergers and acquisitions, capital advisory, restructurings, shareholder advisory, and other strategic advisory matters, whereas its asset management segment offers a range of investment solutions and investment management services in equity and fixed-income strategies.

In April, LAZ’s asset management segment added a long/short equity team focused on the technology, media, and telecommunications (TMT) industries in its expansion of its alternative management platform. This should help it  enhance its  fundamental research capabilities as part of its objective to f maximize investment alpha and risk-adjusted returns.

LAZ’s non-GAAP operating revenue has declined 24% sequentially to $647.86 million for the fiscal first quarter, ended March 31. The company reported a 47% sequential decline in adjusted net income over the same period. Its adjusted EPS per share was  $0.87, representing a 48% decline sequentially. The stock has declined 10.7% over the past three years.

LAZ’s POWR Ratings are consistent with this bleak outlook. It has an overall C rating , which equates to Neutral in our POWR Ratings system. LAZ has a D grade for Sentiment, and C for Growth, Value, and Momentum. Of the 24 stocks in the Investment Brokerage industry, it is ranked #11.

Click here to see the additional POWR Ratings for LAZ (Quality and Stability).

Cowen Inc. (COWN)

COWN is a diversified financial services firm that offers  investment banking services, equity and credit research, sales and trading, prime brokerage, global clearing, commission management services and actively managed alternative investment products. The company operates through two segments—Operating Company (Op Co) and Asset Company (Asset Co).

Last month, Kyber Data Science, a subsidiary of COWN, introduced a next-generation user experience to simplify complex healthcare data and provide insights into the specific market factors that should drive faster and more profitable decisions. Its new dashboard allows investors to track the utilization of healthcare treatments, even in pharmaceutical and biopharmaceuticals markets.

In the first quarter, ended March 31,  COWN reported a 126.3% year-over-year increase in its  expenses to $483.55 million. Its  economic compensation expenses were $388.4 million for this period, compared to $125.7 million in the first quarter of 2020. Also, it reported a $1.47 million loss under its  Asset Co segment.

A  $1.53 consensus EPS estimate  for the current quarter, ending June 2021, represents a 73.1% decline year-over-year, while the $387.91 million consensus  for the current quarter represents a 26.8% decline year-over-year.

COWN’s uncertain prospects are apparent in its POWR Ratings. The stock has an overall C rating, equating to a Neutral in our proprietary rating system. COWN also has a D grade for Stability, and a C grade  for Growth and Momentum. Investment Brokerage industry, the stock is ranked #12.

In addition to the POWR Ratings grades we’ve just highlighted, one can see the COWN’s ratings for Sentiment, Quality and Value

GS shares were trading at $369.63 per share on Friday afternoon, up $3.66 (+1.00%). Year-to-date, GS has gained 40.72%, versus a 13.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Samiksha Agarwal

Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...

More Resources for the Stocks in this Article