This year started on a strong note in light of initial optimism regarding potential interest cuts by the Federal Reserve, a solid labor market, strong consumer spending and technological developments.
Nevertheless, the optimism related to interest rate cuts was tempered by concerns regarding geopolitical tensions in the Middle East and renewed inflation fears. This uncertainty regarding rate cuts led to increased client volatility. Though the Fed has reduced interest rates by 100 basis points since September, it has hinted at fewer cuts for 2025.
The S&P 500 hit record levels more than 50 times this year, attributed to high volatility and a rise in client activity amid election results and uncertainty lingering around rate cuts. Further, the U.S. presidential election results kept the momentum ongoing as optimism kicked in on the back of anticipated tax cuts and expansionary fiscal measures. These factors led to higher trading activities. As such, trading revenues are expected to keep increasing for brokerage firms, given a rise in new brokerage account openings. Against this favorable backdrop, investors can bet on BGC Group Inc. BGC, Robinhood Markets, Inc. HOOD and Interactive Brokers, Inc. IBKR as these are well-poised for growth next year.
The industry players have been introducing new products and services including the launch of cryptocurrency offerings and many tools to cater to rising demand among investors. Apart from these, commission-free models and 24-hour trading are some of the other features that brokerage companies are rolling out to gain market share. With the markets expected to perform well in 2025, brokerage firms are likely to benefit from the same.
We have handpicked the abovementioned three brokerage stocks through Zacks Stock Screener. These stocks have a Zacks Rank #3 (Hold) or better and have rallied more than 20% since the beginning of the year. Further, these companies are expected to record earnings growth this year and in 2025 and witnessing positive estimate revisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
BGC Group, based in New York, is a brokerage and financial technology firm servicing the global financial, energy and commodities markets. The company operates globally across all major geographies, including the United States, U.K., Asia, Other Europe, MEA, France, and Other Americas.
BGC’s total revenues witnessed a compound annual growth rate (CAGR) of 5% over the past six years (2017-2023). Growth was primarily driven by higher brokerage revenues, which reflected a 3.5% CAGR over the same period. The uptrend for both metrics continued during the first nine months of 2024, driven by higher foreign exchange and energy, commodity and shipping (ECS) volumes.
Further, BGC Group’s strategic acquisitions to expand its market share alongside higher secondary market volumes will likely support its top-line expansion. This October, the company acquired Sage Energy Partners to become the world’s first “one-stop-shop” for environmental brokerage. Also, it agreed to acquire OTC Global Holdings to strengthen its ECS brokerage services. Such buyouts diversify BGC’s client base and its macro performance drivers.
Additionally, this September, the company launched the FMX futures exchange for trading SOFR futures, with U.S. treasury futures anticipated to be added in the first quarter of 2025. This will aid the company’s rates revenues.
BGC, with a market cap of $4.3 billion and a Zacks Rank #1, has risen 21.2% this year. The Zacks Consensus Estimate for its 2024 and 2025 earnings has been revised 6.5% and 7.1% upward, respectively, over the past two months. Also, the company’s earnings are anticipated to grow 20.7% and 7.1% in 2024 and 2025, respectively.
Robinhood Markets, based in Menlo Park, CA, is a financial services company that offers trading services in crypto, stocks, options and ETFs, cash management, margin and securities lending, and Robinhood Gold. The company serves in the United States, U.K. and selected European Union (EU) jurisdictions through its apps and subsidiaries.
Robinhood’s product diversification initiatives to acquire clients alongside opportunistic acquisitions to diversify its business will support its financials. In November, the company agreed to acquire TradePMR, foraying into the registered investment adviser custody market. In June, it agreed to acquire Bitstamp Ltd. to expand its crypto footprint. Earlier this month, the company announced its expansion plans in Asia in 2025, with Singapore being the headquarters for the region.
Additionally, HOOD announced a tax lots feature for its investors earlier this month. In October, it introduced Index Options and Robinhood Legend to cater to web traders. In March, it launched the Robinhood Gold Card for its Robinhood Gold clients, venturing into the credit card space. Further, the company plans to launch Futures (a nine-figure revenue business according to the company) early 2025.
Further, higher market activity alongside the company’s no-commission business model and industry-leading margins will likely boost its transaction-based revenues. The metric witnessed a 46.4% CAGR over the four years ended 2023, primarily driven by equities and options trading. The uptrend continued during the first three quarters of 2024, driven by higher options and crypto trading.
The Zacks Consensus Estimate for HOOD’s 2024 and 2025 earnings has been revised 8.1% and 12.6% upward, respectively, over the past month. Its earnings are projected to witness a year-over-year jump of 231.2% this year and a rise of 21.8% in 2025. The company has a market cap of $33.9 billion and currently carries a Zacks Rank of 3. The company’s shares have skyrocketed 200.9% year to date.
Interactive Brokers, headquartered in Greenwich, CT, operates as an automated global electronic market maker and broker. The company operates across the globe through offices in Canada, the U.K., Ireland, Switzerland, Hungary, India, China (Hong Kong and Shanghai), Japan, Singapore and Australia.
IBKR’s technological superiority alongside its emphasis on developing proprietary software to automate broker-dealer functions will aid its revenues. The company’s total net revenues reflected a CAGR of 17.9% over the last five years (2018-2023), with the momentum continuing in the first nine months of 2024. This rise was primarily driven by higher interest income, commissions and the company’s business restructuring efforts.
Further, the company’s technological excellence has kept its compensation expense relative to net revenues (11.5% in the first nine months of 2024) very low compared to its peers. Interactive Brokers’ efforts to enhance its global presence and solid capital distributions are other positives. In November, it launched Plan d’Epargne en Actions accounts to boost its offerings for its French clients. Further, it launched IBKR GlobalTrader, enabling investors across the globe to trade stocks through mobile applications. Also, the company was one of the first brokers to introduce Overnight Trading on U.S. stocks and exchange-traded funds. Also, IBKR Lite allows investors to trade commission-free and offers crypto trading at lower commissions than crypto exchanges.
IBKR, with a market cap of $74.3 billion, has soared 112.2% in the year-to-date period. Though the Zacks Consensus Estimate for its 2024 earnings has been moved 1.4% lower, the same has been revised marginally upward for 2025 over the past two months. Further, the company’s earnings are expected to grow 18.4% and 3.5% in 2024 and 2025, respectively. IBKR carries a Zacks Rank of 3, at present.
