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3 Stocks to Snag for a Comeback in Capital Markets
Oppenheimer analysts have identified eight standout stocks poised for growth, even in the face of potential market pullbacks. Out of this curated list, three standout names—Nasdaq, Inc. (NDAQ), Goldman Sachs Group Inc. (GS), and Affiliated Managers Group (AMG)—are worth a closer look, with upside to Wall Street's mean price targets. They are among Oppenheimer’s top buy-rated stocks within the S&P Capital Markets ETF (KCE), which has recently surpassed major resistance when compared to both the equal-weighted S&P 500 ETF (RSP) and the cap-weighted S&P 500 Index ($SPX) itself.
“While market conditions can be considered near-term overbought, the industry remains a top buy idea both now and on a market setback,” Oppenheimer analysts wrote in a recent note. “The broadness of bottom-up strength adds to our conviction.”
In particular, the analysts highlighted that NDAQ's “breakout [is] intact and positioned to resume,” GS is in a “bullish consolidation range resolving higher,” and AMG should be approached with a “buy dips strategy following a multi-year breakout.”
Here's a closer look at these top stock picks.
1. Nasdaq
New York-based Nasdaq, Inc. (NDAQ), a technology company with a market capitalization exceeding $42 billion, serves capital markets and various industries around the globe.
Nasdaq operates through three primary segments: the Capital Access Platforms division, which provides real-time market data and analytics; the Financial Technology segment, offering tools such as Verafin for financial fraud detection and AxiomSL for risk management; and the Market Services segment, which manages its core exchange and marketplace operations.
Shares of the exchange and market data company have gained around 27.8% year-to-date.
On Oct. 24, Nasdaq reported solid financial results for the third quarter of 2024. The company’s non-GAAP net revenue grew 26% year-over-year to $1.18 billion, beating Wall Street’s expectations by $11 million. Notably, the non-GAAP revenue does not include a $34 million purchase accounting adjustment associated with a change in revenue reporting for the AxiomSL business in 2023. Non-GAAP Solutions revenue was $906 million, marking a 31% increase from the previous year, driven by strong growth in Index and Financial Technology. Also, Market Services net revenue stood at $266 million, a 13% increase year-over-year, primarily fueled by a $15 million increase in U.S. equity derivatives and an $11 million increase in U.S. cash equities. Adjusted EPS was reported at $0.74, topping expectations by $0.05.
“Nasdaq delivered its fourth consecutive quarter of double-digit Solutions growth with strong overall quarterly performance,” said Chair and CEO Adena Friedman.
On the expense side, NDAQ reported adjusted operating expenses of $543 million, up 21% year-over-year, resulting in an adjusted operating margin of 54.0%, an increase of 175 basis points from the previous year.
It’s also worth noting that several of Nasdaq’s business lines experienced robust organic growth rates. For example, Nasdaq’s Index business achieved an organic growth rate of 26% year-over-year, surpassing its medium-term forecast of mid-to-high single digits. Additionally, the combined Adenza businesses reported 15% year-over-year growth, exceeding the medium-term outlook of low to mid-teens.
Along with robust business growth, Nasdaq reported substantial progress in its cross-selling opportunities following the acquisition of Adenza in the fourth quarter of 2023, signing 39 new customers during the quarter, 110 upsells and 2 cross-sells. Additionally, the company noted that the integration of Adenza was progressing faster than planned, having already achieved 80% of the anticipated $80 million in cost synergies from the acquisition, up from 70% at the end of the previous quarter.
NDAQ’s cash flow from operations came in at $244 million, allowing the company to continue making significant progress in its deleveraging efforts. Notably, it reduced its gross leverage to 3.8x from last quarter’s 3.9x. Nasdaq’s emphasis on deleveraging and realizing expense synergies from the Adenza acquisition highlights its solid financial management and strategic execution.
However, some weaknesses appeared in the company’s results, as the Data and Listings business faced challenges due to a weak IPO market and the effects of de-listing activity in 2023.
Looking forward, NDAQ updated its 2024 guidance for adjusted operating expenses to $2.15 billion to $2.18 billion from the previous range of $2.15 billion to $2.19 billion.
The company’s quarterly results were well-received on Wall Street, prompting analysts from Barclays, Morgan Stanley, and Oppenheimer to raise their price targets for the stock.
According to Wall Street projections, NDAQ is expected to post a 19.97% year-over-year revenue growth to $4.67 billion in fiscal 2024, while earnings are estimated to drop 1.42% year-over-year to $2.78 per share.
On the dividend side, Nasdaq’s board recently approved a quarterly dividend of $0.24 per share, in line with the previous, payable to shareholders on Dec. 20. NDAQ’s annualized dividend of $0.96 results in a forward yield of 1.29%.
With 11 consecutive years of dividend growth and a moderate payout ratio of 33.09%, the company is likely to continue rewarding shareholders with dividend increases and share buybacks. A notable highlight from the third quarter was that Nasdaq reduced its commercial paper debt by an additional $50 million and distributed $226 million to its shareholders, comprising $138 million in dividends and $88 million through share repurchases.
In terms of valuation, the stock is currently trading at 26.63 times forward adjusted earnings, roughly in line with peers Intercontinental Exchange (ICE) and Cboe Global Markets (CBOE), which have multiples of 25.44x and 24.26x, respectively. This suggests that NDAQ stock is fairly valued at current levels.
Analysts hold a positive view on NDAQ stock, giving it a “Moderate Buy” rating overall. Out of the 19 analysts covering the stock, eight recommend a “Strong Buy,” four advise a “Moderate Buy” rating, and the remaining seven maintain a “Hold” rating. The mean target price for NDAQ stock is $82.33, suggesting an upside potential of 10.7% from its Friday closing price.
2. Goldman Sachs Group
Goldman Sachs Group, Inc. (GS), based in New York, is a financial institution offering a wide array of services to corporations, financial institutions, governments, and high-net-worth individuals. GS specializes in investment banking, trading and principal investments, asset management, and securities services. Its market cap currently stands at around $164 billion.
Shares of the global investment banking and securities firm have rallied 34.6% on a year-to-date basis.
On Oct. 15, Goldman Sachs reported better-than-expected Q3 results. Its total net revenues advanced 7.4% year-over-year to $12.7 billion, driven by higher net revenues in Global Banking & Markets and Asset & Wealth Management, partially offset by a decline in Platform Solutions net revenues. As a result, the firm’s top line surpassed the consensus estimate by $940 million. Goldman’s EPS grew 54% year-over-year to $8.40, beating expectations by $1.48. In addition, its annualized return on average common shareholders’ equity stood at 10.4% and its annualized return on average tangible common shareholders’ equity came in at 11.1%.
More precisely, net revenues in Global Banking & Markets were $8.55 billion, up 7% year-over-year, bolstered by robust performance in Equities and record quarterly net revenues in Fixed Income, Currency & Commodities (FICC) financing. Notably, GS continued to be the top M&A advisor and a leading global risk intermediary. Also, the firm’s investment banking fees backlog increased again in the quarter, fueled by advisory, positioning its leading investment banking franchises to benefit from the ongoing resurgence in activity.
In the Asset and Wealth Management, Goldman Sachs’ status as a leading global active asset manager, a top-five alternatives player, and a premier ultra-high network franchise provides substantial opportunities in secular growth areas. GS reached a new record for assets under supervision in the third quarter, exceeding $3 trillion, marking its 27th consecutive quarter of long-term net inflows. The firm demonstrated further growth and more durable management, other fees, and private banking and lending revenues, which collectively reached a record $3.4 billion, up 9% from last year.
Goldman is confident in its ability to increase these more durable revenues at a high single-digit rate over the coming years, with alternatives fundraising remaining strong. It is also important to note that the firm increased its total client assets to $1.6 trillion, and its ultra-high net worth franchise is well-positioned for global growth as GS expands its advisor presence along with its premier offerings and lending services to clients.
Net interest income reached $2.62 billion, up from $2.24 billion in Q2 and $1.55 billion in Q3 2023. The provision for credit losses stood at $397 million, compared to $7 million in the same quarter a year ago, reflecting net provisions associated with the credit card portfolio.
Analysts tracking the company anticipate a 62.40% year-over-year surge in its EPS to $37.14 for fiscal 2024, with revenue expected to grow 11.24% year-over-year to $51.75 billion.
Goldman Sachs has a long history of rewarding shareholders, with a track record of paying dividends for 24 consecutive years, exceeding the sector median of 11.2 years. It recently declared a quarterly cash dividend of $3.00 per share, in line with the previous, payable to its shareholders on Dec. 30. Shares of GS currently yield a dividend of 2.17%.
With a 5-year dividend growth rate of 24.91%, well above the sector median of 5.68%, the stock is particularly appealing to income-focused investors. Notably, the firm returned about $2 billion to common shareholders in the most recent quarter, including dividends of 978 million and stock repurchases of $1 billion.
In terms of valuation, GS stock is trading at 14.06 times the consensus earnings estimate for 2024, close to the sector median of 12.12x, indicating that the market generally anticipates GS to perform in line with peers.
Analysts have a consensus rating of “Moderate Buy” on Goldman Sachs stock, with a mean target price of $553.45, which indicates an upside potential of about 7% from the stock’s Friday close. Of the 22 analysts providing recommendations for the stock, 14 rate it as a “Strong Buy,” one gives it a “Moderate Buy” rating, and the remaining seven suggest a “Hold.”
3. Affiliated Managers Group
With a market capitalization of $5.77 billion, Affiliated Managers Group, Inc. (AMG) operates as an investment management company in the United States, offering services to mutual funds, institutional clients, retail investors, and high-net-worth individuals. It has $701 billion in assets under management (AUM), divided among Private Markets (18% of AUM), Liquid Alternatives (19% of AUM), and Differentiated Long-only (63% of AUM).
AMG stock has climbed 28% since the beginning of the year.
Affiliated Managers Group reported its third-quarter earnings this morning, with net income totaling $123.6 million, or $3.78 per share. On an adjusted basis, EPS of $4.82 reflected 18% growth year over year and arrived in line with expectations, while revenue of $516.4 million fell narrowly short of the $521.4 million consensus.
“Our growth strategy continues to drive the evolution of our business mix toward secular growth areas, with alternative strategies meaningfully, and increasingly, contributing to AMG’s earnings," said President and CEO Jay C. Horgen. “AMG’s dedicated private markets Affiliates raised approximately $7 billion in the quarter, reflecting the strength of the ongoing demand for our Affiliates’ specialized strategies.”
The company repurchased approximately $103 million in common stock during Q3, bringing AMG's year-to-date total buybacks to approximately $580 million. Although the rate of repurchases will need to align with economic net income over the long term, given that the company pays only a nominal quarterly dividend of $0.01 per share, investors can still anticipate a high single-digit to potentially low double-digit buyback yield, making it an attractive option.
In terms of valuation, priced at 8.77 times forward economic earnings, the stock trades at a significant discount compared to the sector’s median of 12.12x. The multiple is appealing as it assumes minimal to no growth in the company’s business, yet AMG is likely to demonstrate improved operating momentum due to lower Fed rates.
Overall, analysts have deemed Affiliated Managers Group stock a “Strong Buy,” with a mean target price of $210.17, indicating an upside potential of about 8% from Friday’s closing price. Out of the six analysts covering the stock, five recommend a “Strong Buy,” and one has a “Hold” rating.
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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
