Last week, I looked for companies trading at low multiples of their growing earnings and tried to determine whether they would be affected by recent global events. This week, I”m continuing in this vein, looking for possible opportunities in difficult markets.
Volatility as your friend
When investors talk about volatility, they usually mean stocks going down. There is an old stock market saying that share prices climb the stairs and go down in the lift. Over the past few weeks, many of us have experienced that wobbly feeling in our stomachs as the lift has descended rapidly.
However, some companies benefit from these downward moves, as these tend to drive trading volume. You only have to look at the problems Hargreaves Landsdown has had recently to see how keen investors have been to trade lately. The number of listed UK stockbrokers is now quite limited, with HL taken over and Jarvis forced to sell X-O to Interactive Investor for less than 2xFCF. Interactive Investor is owned by the recently re-vowelled Aberdeen (LON:ABDN), but this company is also an asset manager whose AUM will be negatively impacted by market moves. One listed stalwart remains: AJ Bell (LON:AJB)
Looking at the chart, the market has hardly priced in an unexpected boom time:
While the company may not be Bargain of the Century, it is more modestly valued than in the past, for such a high-quality business:
At the spicier end of the industry, we have the spread-bet companies. Many of these also include growing stockbroking businesses that will benefit from higher volumes. However, it is the leveraged parts of the business that will really see the positive impact, as these tend to see higher direct trading volume and a desire for investors to hedge exposure elsewhere.
I recently wrote a brief Stock Pitch article on CMC Markets (LON:CMCX) that lays out the thesis in more detail.
All three UK-listed spreadbetters (IG group (LON:IGG) Plus500 (LON:PLUS) CMC Markets (LON:CMCX)) have done well over the last month, but perhaps less so than one would expect:
The reality is that these are still equities, and they get traded as part of index basket trades.…
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