Stock Market Boom: Top 3 Financial Stocks to Ride the Rally

Larry Ramer

February 13, 2024 4 min read

By now, it’s obvious to everyone that we are in the midst of a rather strong bull market. Powered by the strength of tech, stocks have been climbing nearly continuously since October 2022. As a result, it should not be long before many high net worth investors put more money to work. What’s more, tens of thousands of retail investors will also probably follow suit soon. Many private firms are likely to start launching IPOs in order to exploit the strengthening stock market. This led us to write this article on the looming financial stocks boom.

Also worth mentioning is that, with interest rates stabilizing and fears of a recession largely having disappeared, merger and acquisition activity is likely to heat up going forward. All of these developments are going to greatly boost investment banks, stock brokerage firms, and other financial-services companies. Here are three of the top names that investors can buy to benefit from this financial stocks boom.

Interactive Brokers (IBKR)

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Interactive Brokers (NASDAQ:IBKR), one of the leading stock brokers, has definitely already begun benefiting tremendously from the stock market rebound.

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Last quarter, its earnings per share jumped 13% versus the same period a year earlier to $1.48. And on the top line, its net revenues advanced 17% year-over-year to $1.14 billion.

Also noteworthy is that IBKR, like other stock brokers, is benefiting from high interest rates because it obtains interest from investors’ excess funds that are kept in its accounts.

Last month, Goldman Sachs raised its rating on IBKR to “buy” from “neutral.” The bank thinks that investors were overestimating the extent to which the Fed’s upcoming interest rate cuts will undermine the company’s profits. Indeed, I believe that the increased commission revenue which the firm will obtain from much higher retail participation in the market will far outweigh its diminished interest income.

The shares are changing hands at an attractive forward price-earnings ratio of 16 times.

Raymond James (RJF)

The logo for Raymond James (RJF) is seen on the side of a building.

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Raymond James’ (NYSE:RJF) wealth management unit began benefiting tremendously from the bull market. The assets of its Private Client Group jumped 18% versus the same period a year earlier to a record $1.3 trillion. The large year-over-year increase and the record-setting level suggest that RJF is well-positioned to generate high, rapidly expanding investment fees from its private clients as the bull market continues.

What’s more, RJF offers M&A advisory services and IPO underwriting services, so the firm is well-positioned to benefit a great deal from the likely, large rebound in the volume of those transactions as well.

On Jan. 19, JPMorgan raised its rating on RJF to “overweight” from “neutral,” Like me, JPMorgan thinks that RJF will get a significant boost from improved “confidence in the macro backdrop”. Additionally, JPM believes that “potentially bottoming trends in capital markets/M&A activity” will also boost RJF’s financial results.

RJF is changing hands at a forward price-earnings ratio of 12.4. That’s a rather low valuation, given its strong growth outlook.

Given all of these points, RJF is very well-positioned to benefit from this financial stocks boom.

Robinhood Markets (HOOD)

Robinhood's mobile app logo is displayed on a smartphone screen. Robinhood stocks. HOOD stock

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Like Interactive Brokers, Robinhood (NASDAQ:HOOD) is well-positioned to get a big boost. This is happening as more retail investors put more of their money to work buying stocks.

What’s more, since HOOD tends to be very popular with younger Americans, the company should get a meaningful lift. This is from the fact that those Americans have become much wealthier since 2019. Specifically, the funds controlled by adults under 40 soared 80% “since 2019,” the Federal Reserve reported recently, while the wealth of Americans in other age groups climbed only 10%30% during the same period.

Also like Interactive Broker, HOOD is benefiting significantly from high interest rates.

Also noteworthy is that, over the longer term, HOOD’s results could be boosted by its forays into future markets..

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.