For years the volatility bear as measured by the CBOE Volatility Index was in hibernation. The index, known by its ticker symbol VIX, is a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options. But since early February, that long sleeping bear has awoken, and most on Wall Street feel that heightened volatility is here to stay.
It’s important to note that higher volatility than what we experienced over the past few years is normal. So are 5% corrections, which typically occur three times a year. In a new report, Deutsche Bank feels that the elevated volatility will support higher stock trading volumes, which benefit numerous financial-related stocks, including brokers and exchanges.
The analysts focus on four top companies they see as benefitting, and all are rated Buy at Deutsche Bank.
Many on Wall Street love this firm’s growth potential near term and especially long term. BlackRock Inc. (NYSE: BLK) is the largest asset manager in the world, with roughly $4.9 trillion in assets under management. Its acquisitions of Merrill Lynch Investment Management and iShares transformed it from a fixed income manager into a multi-product and multi-channel giant, with roughly 40% of its assets under management overseas. It has leading franchises in exchange traded funds (ETFs), institutional fixed income, alternatives and cash. It also operates Solutions, a leader in risk analytics.
The company’s strong historical and prospective dividend growth is underpinned by the high-quality and diversified business model. Dividends have increased 18% annually over the past 10 years. Dividend growth likely will moderate but remains solid in the low teens, consistent with expectations for earnings growth in the years ahead.
Shareholders are paid a 2.1% dividend. The Deutsche Bank price objective for the stock is $623, while the Wall Street consensus target is $617.08. Shares closed Tuesday at $548.66 apiece.
This company is the beneficiary of volatility and options trading. CBOE Global Markets Inc. (NASDAQ: CBOE) was founded in 1973 as the first U.S. options exchange and went public in 2010. Its primary business is trading listed options contracts on equities, indexes (including several exclusively licensed and proprietary products) and ETFs through a hybrid model that combines electronic and open outcry trading.
CBOE Global Markets also offers listed options on C2 and futures and options on futures products on CFE. The company has grown primarily through organic means over the years.
Investors receive a 0.91% dividend. Deutsche Bank has a $128 price target and that compares to the consensus target of $118.58. Shares closed near that level Tuesday at $118.17.
This company had a huge 2017 and is the top pick at Deutsche Bank. CME Group Inc. (NASDAQ: CME) exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options. CME brings buyers and sellers together through its Globex electronic trading platform and its trading facilities in New York and Chicago.
The company also operates CME clearing, one of the world’s leading central counterparty clearing providers, which offers clearing and settlement services across asset classes for exchange traded contracts and over-the-counter derivatives transactions.
The company’s non-U.S. business is growing, and with West Texas Intermediate crude increasing relevance as a global benchmark, it is another positive for the trading giant.
Investors are paid a 1.65% dividend. The $185 Deutsche Bank price target is well above the $172.62 consensus target. Shares closed on Tuesday at $169.59.
This is one of the leading e-brokers, as well as a top pick at Deutsche Bank. TD Ameritrade Holding Corp. (NYSE: AMTD) is a leading online brokerage and financial service firm that offers clients trading, investment and advice solutions.
The firm was founded in 1975 to provide investors with a cost-efficient or discount and online brokerage offering, which has driven its success. Online trading expanded to cash management, which has expanded to branches (100+), investment products and its registered investment advisor offering.
The Deutsche Bank analysts are bullish on the possibility of strong retail trading volume, and this is the premier pick in the industry. Despite the strong competition in the discount arena, the company has outstanding growth possibilities.
Shareholders are paid a 1.43% dividend. The Deutsche Bank price objective is $70. The posted consensus estimate is $64.97, and the stock closed trading on Tuesday at $59.03 a share.
The increase in volatility looks like it is here to stay, and, again, it really is going back to what is considered more normal levels. These four top stocks look to benefit, as trading volumes pick up across the board and maybe stay there.