You knew it was bound to happen. Once online trading companies started to lower or eliminate commissions, the retail trading public would become more active, and that is an understatement. Combine that with the 35% decline in the stock market in a month, back in February and March, and many people that never invested themselves are now in the game.
Recently a spokesperson for San Francisco-based Charles Schwab said the brokerage is seeing “strong, above-average asset and account growth.” It should be noted that Schwab is still completing last year’s $26 billion all-stock purchase of TD Ameritrade.
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A new Goldman Sachs research report also notes some very strong momentum with capital markets stocks, and the firm raised its price targets on some of the highest-ranked of those companies in the Goldman Sachs research coverage. These include not only brokerage firms but also the top exchanges and private equity as well.
Carlyle
This limited partnership is a solid holding for investors looking for private equity exposure. Carlyle Group L.P. (NYSE: CG | CG Price Prediction) is a leading global alternative asset manager, providing investment management services across four operating segments, including Corporate Private Equity, Global Market Strategies, Real Assets and Fund of Funds Solutions. Carlyle has offices worldwide and is headquartered in Washington, D.C.
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Last week, Carlyle reported that distributable earnings (the cash available for paying dividends to shareholders) rose to $175 million from $100.8 million a year earlier. This resulted in distributable earnings per share of $0.48, which surpassed the average analyst forecast of $0.40, according to data from Refinitiv.
The analysts noted this when discussing the earnings release:
Taking a step back, CG is facing a relatively more challenging near-term earnings growth backdrop given a relatively higher percentage of earnings dependent on incentive fees and a more challenging fee related earnings growth outlook over the next 12 months. That said, we think valuation provides some support, with the stock trading at 17x 2021 price to earnings and ~17.5x 2021 after-tax fee related earnings.
Shareholders receive a substantial 5.59% dividend. Goldman Sachs lowered its price target on the shares to $26 from $28. The consensus target across Wall Street was last seen at $26.54. The final Carlyle stock trade on Friday came in at $22.18, after falling over 5% on the day.
Intercontinental Exchange
This company resides on the Goldman Sachs Americas Conviction List of top stocks to buy. Intercontinental Exchange Inc. (NYSE: ICE) was founded in 2000 as an over the counter (OTC) energy market and has since expanded both organically and through acquisitions. The firm offers central clearing services for the futures and OTC markets. Its primary products include agriculture, financial and energy contracts and credit default swaps.
The company recently completed a transformational acquisition of NYSE Euronext that greatly diversifies the company while offering significant optionality.
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Noting the continuing volatility in the markets, the Goldman Sachs analysts noted this in the research report:
With macro conditions remaining uncertain, we think it continues to offer the best risk/reward in the Exchange space. Specifically, elevated volatility levels in the first quarter drove solid volume growth at ICE particularly within ICE’s energy complex which was up 50% year over year. While volatility levels have subsided in April, energy volumes at ICE are still tracking up by 40% year over year Looking ahead, we expect physical challenges and risks of lower US Oil production to drive stronger Brent vs WTI volumes dynamics over the near-to-medium terms, with growing momentum at ICE’s other energy products is an additional revenue tailwind.
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Investors receive a 1.35% dividend. Goldman Sachs raised the $90 price target to $100, while the posted consensus target is $99.24. Intercontinental Exchange stock closed on Friday at $88.67 per share.
LPL Financial
This brokerage firm has been the destination of choice from many financial advisors that have left bulge bracket companies. LPL Financial Holdings Inc. (NASDAQ: LPLA) serves independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow their practices.
The company provides objective financial guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.
It is also on the Goldman Sachs Americas Conviction List, and the analysts are very positive on the stock and said this:
Following 6.5% annualized organic growth in the first quarter, management suggested continued strong trends for April even amid the current work-from-home situation, implying ~$2.9 billion in net new assets. We are encouraged by both management’s ability to continue recruiting new advisors and onboarding new advisors electronically, which is leading to better than expected organic growth.
Shareholders receive a 1.61% dividend. The $72 Goldman Sachs price objective was lifted to $75, well above the consensus target of $66.59. The shares closed at $61.98 apiece on Friday.
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Stifel Financial
This former regional firm has branched out over the years to become a major force in the retail and institutional world. Stifel Financial Corp. (NYSE: SF) provides securities brokerage, investment banking, trading, investment advisory and related financial services. It operates through the following segments.
The Global Wealth Management segment provides securities transaction, brokerage and investment services to clients. The Institutional Group segment involves research, equity and fixed income institutional sales and trading, investment banking, public finance and syndicate. The Other segment interest income from stock borrowing activities, unallocated interest expense, interest income and gains and losses from investments held.
While first-quarter results disappointed some, Goldman Sachs remains positive on the shares and the report said this:
We view the company’s first quarter 2020 EPS miss as largely transitory. Although much higher than expected, comparable accrual was disappointing, we think this puts the firm into position to return closer to historical comparable accrual levels for the rest of the year, helping offset some of the revenue pressures from both lower rates and softer activity levels.
Shareholders are paid a 1.62% dividend. Goldman Sachs raised its price target to $49 from $43. The consensus target is $49, and Stifel Financial stock fell almost 5% on Friday to close at $42.19 per share.
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These four top capital markets stocks offer solid upside to the Goldman Sachs target prices, and with all four paying out dividends, the total return potential is also a solid positive. With volatility sure to remain, it makes sense to scale buy shares in case another big sell-off happens.
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