Like other sectors of the S&P 500, the capital market stocks had a tremendous year. Capital market stocks include brokerage firms, asset managers, financial advisory firms and more. Many of the stocks took an absolute beating during the 2008 to 2009 market sell-off and have returned to their previous trading multiples. That is exactly the reason the analysts at Credit Suisse are much more selective this year with their stock picks for 2014.
In a new research report, the Credit Suisse team assigned a market weight allocation to the sector. While there are specific stocks they think will do great in 2014, they are not prepared to overweight the sector. The looming specter of the Volcker Rule changes, which will begin in 2015, are sure to be a factor in stock selection and performance. Here are the top capital market stock picks from Credit Suisse for next year.
Goldman Sachs Group Inc. (NYSE: GS) leads off the list and with good reason. The Credit Suisse analysts view Goldman Sachs as the absolute best-in-class brokerage franchise. With a leading share of equity trading, an incredible capital markets operation and uber-high net worth client base, the firm is poised for continued success next year. We have detailed the power of their Conviction Buy List research. Shareholders are paid a 1.3% dividend. The Credit Suisse price target for the stock is posted at $185. The Thomson/First Call estimate is $176.50. Goldman Sachs closed Wednesday at $167.62.
Lazard Ltd. (NYSE: LAZ) is another top name to buy for 2014. The Credit Suisse view is the company will be a long-term market share winner in asset management and in the financial advisory services. The company also announced this week a special dividend for shareholders of $0.25 per share on their common stock. Investors already receive a 2.4% dividend. The Credit Suisse price target for the stock is $42, and the consensus target is $43. Lazard closed right there on Wednesday at $42.87.
FXCM Inc. (NYSE: FXCM) might be a mysterious name to some investors, but its prowess in providing online foreign exchange (FX) trading is almost unsurpassed. The Credit Suisse team sees the possibility for organic growth in the company retail trading volumes. Investors are paid a 1.5% dividend. The Credit Suisse price objective is $17, while the consensus is higher at $19. FXCM closed Wednesday at $16.52.
State Street Corp. (NYSE: STT) is a financial holding company that provides investment servicing and investment management services to institutional investors worldwide. The company’s investment servicing products and services include custody, deposit taking, product- and participant-level accounting, daily pricing and administration, master trust and master custody, record keeping and cash management, as well as foreign exchange, brokerage and other trading services. Credit Suisse admits near term the company may face challenges, but the long-term picture is bright. Investors receive a 1.5% dividend. Credit Suisse has an $80 price target, and the consensus figure is at $77.50. State Street closed Wednesday at $70.38.
Intercontinental Exchange Group Inc. (NYSE: ICE) is the leading network of regulated exchanges and clearing houses for financial and commodity markets. The company delivers transparent, reliable and accessible data, technology and risk management services to markets around the world through its portfolio of exchanges, including the New York Stock Exchange, ICE Futures, Liffe and Euronext. Investors are paid a small 1.2% dividend. The Credit Suisse price target is set at $210 and may be moved higher. The consensus target is $235. ICE closed Wednesday at $218.60.
Apollo Global Management LLC (NYSE: APO) primarily provides its services to pension and endowment funds, institutional investors, individual investors, pooled investment vehicles and corporations. It manages client-focused portfolios, hedge funds, real estate funds and private equity funds for its clients. Credit Suisse also thinks it is a very attractive way of gaining exposure to alternative investments without the illiquidity. The company pays a small 0.9% dividend. The Credit Suisse target price is $45, and the consensus is posted lower at $35. Apollo closed Wednesday at $29.93.
Blackstone Group L.P. (NYSE: BX) is another extremely balanced way to play the alternative asset management sector of the business. Credit Suisse was also very impressed with the company’s ability to raise money for its various investment vehicles. The company should be popping corks as the firm is expected to reap paper profits of $8 billion as Hilton Worldwide goes public. It will be the second-biggest private-equity payday of all time. Investors are treated to a very solid 3.4% dividend. Credit Suisse has a $30 price target, and the consensus figure is at $31. Blackstone closed Wednesday at $29.15.
Carlyle Group L.P. (NASDAQ: CG) wraps up the top names to buy in the capital markets sector in 2014. With a ton of cash pouring in and a decided lack in big buyout candidates, the firm is applying the expertise in smaller deals it may not have looked at in the past. With a multi-fund model and a go-anywhere global footprint, this is yet another top stock for investors to participate in a multitude of deals. Investors are paid a 1.9% dividend. The Credit Suisse target for the stock is $36. The consensus print is $35, and Carlyle closed Wednesday at $32.66
Clearly with only one brokerage firm on the list of stock to buy, the Credit Suisse analysts are facing the ultimate effects of the Volcker Rule. The new regulation will tend to crimp the trading and hedging style of many of the Wall Street bulge bracket firms. The focus on asset and alternative asset managers makes good sense for investors in 2014 and beyond.
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