Public interest in the stock markets is off-the-charts. In fact, the last time we saw this much retail involvement in the markets was during the dot-com bubble, more than 20 years ago. Similarly to then, we find ourselves in an extraordinarily strong bull market, with the major averages making new all-time highs regularly.
Just like Internet stocks were all the rage in the late 1990s, in 2021 we have big daily moves in SPACs, EV stocks, and cryptocurrencies. Of course, improved technology is also playing a role in fueling this stock market mania, with trading even more accessible due to smartphones. Besides, now most brokerages offer no commissions and fractional shares, making it that much more attractive to get involved.
Also, the coronavirus is a contributing factor to this retail trading boom. The virus has forced people to stay at home, which has limited people’s choices in regards to activities and entertainment. As a result, more people started getting interested in the stock market.
Another factor is that the government has sent two rounds of stimulus checks, and another larger payment seems imminent. Some of this stimulus has certainly ended up in people’s brokerage accounts. In addition to fiscal stimulus, interest rates are at zero percent which means that stocks are one of the few options for investors to earn returns.
Rising Retail Trading
According to CNBC, in 2019, the average daily volume for equities was 7 billion. The average in 2020 increased to 10.9 billion, and in the early weeks of 2021, it has reached 14 billion. Since the start of the coronavirus, it’s estimated that 10 million new brokerage accounts were opened.
This trend is not likely to end anytime soon. The Fed has pledged interest rates will stay at zero until 2022 which is supportive of continued flows into the stock market. The Internet and social media have empowered the younger generation to take control over their investments. The spectacular gains since the market bottom in March 2020 has opened the eyes of new traders to the opportunities in public markets.
Charles Schwab (SCHW)
SCHW is a multinational financial services company. It started as a discount brokerage but has expanded to offer more services and products to its customers including financial advice and products. Currently, it has 29.6 million users on its platform. In total, the company has $6.7 trillion in client assets.
SCHW’s business is certainly thriving due to increased trading volume and new accounts being opened on the platform. The company also recently closed a $29 billion acquisition of TD Ameritrade which nearly doubled the company’s assets and accounts.
The company’s momentum is clear through recent earnings reports. In Q4, the company topped earnings and revenue estimates. Compared to 2019’s Q4, revenue was 88% higher. Daily average trades increased by 72% to 5.8 million. Analysts have been hiking earnings estimates for 2021 in the last few months from $1.80 to $2.60 per share.
The POWR Ratings are bullish on the stock as well as it has a Strong Buy rating. It has an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank. Among Investment Brokerages, it’s ranked #2 out of 25.
Intercontinental Exchange (ICE)
ICE is the parent company of the New York Stock Exchange. It also owns and operates exchanges all over the world including ones for commodities, mortgage-backed securities, options, and credit.
ICE derives its revenue from trading and clearing fees. It also sells market data to media and financial firms. One of its fastest-growing units is its Mortgage Electronic Registration System (MERS) which provides data for mortgage lenders, servicers, and borrowers.
ICE is clearly benefitting from the increase in trading volumes. Next year, it’s forecast to increase sales by 12%, and earnings by 31%. Despite faster growth, it is cheaper than the S&P 500 with a forward price to earnings (P/E) ratio of 23. It also has higher margins with 35.5% profit margins. Historically, the S&P 500’s margins are around 10%.
These positives are also reflected in the company’s POWR Ratings which rates it a Buy. It has an “A” for Trade Grade and Buy & Hold Grade. Among the Financial Marketplaces group, it’s ranked #7 out of 12.
NDAQ has many similarities to ICE. It owns, Nasdaq exchange which is the other major US-based stock exchange and has the majority of tech listings. Given the recent strength in technology stocks, it’s displaced the NYSE as the largest exchange in terms of dollar-weighted volume.
The company also owns and operates exchanges in Europe and Asia and provides financial services and sells market data to media and financial firms. NDAQ is well-positioned to maintain its growth trajectory due to the companies listed on its exchange getting larger, increased trading volumes, and acquisitions of smaller exchanges all over the world.
Given the positive environment, it’s not surprising that analysts have upgraded 2021 and 2022 EPS estimates by 15% and 11%, respectively. Despite this positive outlook, NDAQ remains reasonably priced with a forward price-to-earnings (P/E) ratio of 22 and 17% profit margins.
The POWR Ratings rate NDAQ a Strong Buy. It has an “A” for Trade Grade and Buy & Hold Grade with a “B” for Industry Rank. Among Financial Marketplace stocks, it’s ranked #1 out of 12.
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ICE shares were trading at $112.35 per share on Friday afternoon, down $0.57 (-0.50%). Year-to-date, ICE has declined -2.55%, versus a 2.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. As a reporter, he covered the bond market, earnings, and economic data, publishing multiple times a day to readers all over the world. Learn more about Jaimini’s background, along with links to his most recent articles.3 Top Stocks to Take Advantage of Rising Retail Trade Volume: Charles Schwab, Intercontinental Exchange, and Nasdaq appeared first on StockNews.com