August should bring the hotter weather, but it’s already bringing in the heat with regards to the stock market. My Stocks and Shares ISA’s taken a hit this week, with the market getting spooked about the concern that interest rates aren’t going to fall quick enough to prevent a economic slowdown.
Tech stocks like Nvidia are getting hit the hardest right now. Even though some are buying, I’d rather put money into another idea.
Something to consider
At first glance, investors might pass on the London Stock Exchange Group (LSE:LSEG). This might be due to not really understanding how the business actually makes money. Or, when trying to pick ISA gems, they might not feel it’s exciting enough to see a long-term share price rally. After all, with no capital gains tax on selling stocks in an ISA, it makes sense for me to include growth stocks.
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Having done more detailed research into the company, I disagree with the above thoughts. Over the past year, the stock’s rallied by 17%. Over three years, this increases to 31%. So it’s clear that I can make good profits from being a long-term investor here.
Unlike the volatility inherent in buying Nvidia shares, the LSEG share price has been a much more smoother ride. It did jump 4% yesterday (1 August) thanks to a strong set of financial results.
Recent results
The half year report started with a comment by the CEO that “every business line contributed to revenue growth”.
Income was up 5.4% versus the same time last year, with the capital markets division growing by an impressive 17.4%. This part of the business makes money from fees earned from company listings. It also includes commissions made from transactions and trading on the exchange.
It’s encouraging to see growth in this area. It highlights to me that there’s good demand not only from investors but also from companies wanting to raise capital via the market.
The business also makes money from offering post-trade services to large clients, as well as providing data services. It’s a well-rounded model that diversifies risk, meaning the firm should do well even if one area underperforms for a period.
Risk versus reward
Looking forward, I’m seriously thinking about buying the stock this month. I think the general outlook for the world economy’s uncertain right now. Instead of adding a stock like Nvidia that can swing up or down 10% on a day, LSEG shares offer me a more defensive option.
As a risk, it’s true that a weak UK economy could negatively impact the share price as less companies might want to go public during this time. Further, some large private companies are looking to list in the US instead of the UK, which would be a blow.
Ultimately, I think LSEG is well positioned right now, with recent results showing that the firm has momentum.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
