2020 has been a year of stock market volatility due to the coronavirus and economic shutdowns. Since the March-lows, volatility has steadily trended lower, although it’s possible that it could come back with a close election that leads to uncertainty over the victor.
So, this may be a good time to bet on companies that are expected to benefit from the rising volatility ahead of the election. These are essentially the companies that run financial exchanges. More trading volume leads to more commissions and more revenues.
There are only a few companies that operate stock exchanges because of the large barrier to entry. Intercontinental Exchange, Inc. (ICE), Nasdaq, Inc. (NDAQ), Cboe Global Markets, Inc. (CBOE) are poised to benefit from the upcoming market volatility.
Intercontinental Exchange, Inc. (ICE)
ICE operates various clearing houses and regulated exchanges for the financial and commodity markets. The company has operations in the United States, the United Kingdom, Canada, Israel, and Singapore. ICE’s stock has gained 10.9% so far this year.
During the third quarter, ICE witnessed significant growth in the open interest across sectors. The Energy Open Interest was up 10% year-over-year. North American natural gas Open Interest witnessed a rise of 18% year-over-year. Emissions/Environmentals OI was up 6% compared to the same period last year. The company has recently acquired Ellie Mae for $11 billion. This move sets up the company to become a dominant player in the market for mortgage software.
The company’s revenue is estimated to increase from 17.2% to $1.5 billion in the fourth quarter and 9.8% in 2021. ICE’s EPS is expected to increase by 12.6% in the fourth quarter and grow at a rate of 10.3% per annum over the next five years.
How does ICE stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Overall POWR Rating
The stock is also ranked #1 out of 5 stocks in the Financial Marketplaces industry.
Nasdaq, Inc. (NDAQ)
NDAQ provides clearing, trading, securities listing, regulatory, and public company services worldwide. The company owns and runs the NASDAQ stock exchange in the United States along with eight stock exchanges in Europe. NDAQ’s stock price has gained 18% so far this year.
In partnership with NDAQ, Invesco has launched the Invesco QQQ Innovation Suite to help users to connect with the NASDAQ-100 index along with the NASDAQ Next Generation 100 index. The platform offers a variety of exposures and investment structures. The company has also partnered with the CME Group which would allow for a new futures contract on the NASDAQ-100 Volatility Index.
The company’s revenue is estimated to increase by 7% to $691 million in the fourth quarter and 1.4% in 2021. The company’s EPS is expected to increase by 11.6% in the fourth quarter and grow at a rate of 9.3% per annum over the next five years.
It’s no surprise that NDAQ is rated a “Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade and a “B” in Buy & Hold Grade. In the 5-stock Financial Marketplaces industry, it is ranked #2.
Cboe Global Markets, Inc. (CBOE)
CBOE created listed options in the United States and operates the Chicago Board Options Exchange. The company also owns BATS Global Markets. CBOE’s stock has gained 11% since the mid-March stock market crash.
During the second quarter, the company reported an increase in revenue of 5% year-over-year. The company’s diluted EPS for the quarter was also up 32% year-over-year. The company has recently completed the acquisition of MATCHNow, which is the largest Canadian equities alternative trading system (ATS). The company has also successfully launched the Mini Cboe Volatility Index futures which is now open for trading on Cboe Futures Exchange.
In September, the company saw the total options volume on its exchange increase 34% year-over-year. The total US equities volume also saw an increase of 34% year-over-year.
The company’s revenue is estimated to increase by 5.4% to $295 million in the fourth quarter and by 8.9% in 2020. The company’s EPS is expected to increase by 9.1% this year and grow at a rate of 2.4% per annum over the next five years.
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ICE shares were trading at $102.26 per share on Wednesday afternoon, down $0.39 (-0.38%). Year-to-date, ICE has gained 11.58%, versus a 10.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...
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