Over the past few weeks, the FTSE 100 has recovered some of the ground lost in the March stock market crash. However, the market could experience further challenges in the next few months. Risks such as a second wave of coronavirus may cause investor sentiment to weaken after its recent improvement.
Against this backdrop, investors face some tough choices. It’s difficult to tell what the future holds for the stock market, and some stocks could yield much better returns than others in the second half of 2020.
However, there are at least two companies that could prosper no matter what happens to the economy over the next few months.
Stock market crash windfall
CMC Markets (LSE: CMCX) and IG Group Holdings (LSE: IGG) were two big winners of the recent stock market crash. As investors around the world rushed to buy and sell positions, these two companies saw a surge in new account openings and the number of deals placed.
As a result, sales and profits surged during the first few months of 2020. According to IG’s latest trading update, its trading revenue for the three months to the end of May is estimated to come in at £259m, more than double the figure of £117.9m achieved in the same period last year.
Full-year net trading revenue is expected at £649m, sharply higher than £476.9m the year before.
CMC has reported a similar surge in profits, thanks to the stock market crash. The company expects to report an increase in pre-tax profits for the financial year for the end of March of £93m, from £6m a year ago, to £99m. The company said income for the first quarter of its new financial year was up around 100%.
Both of these companies rely on customers placing trades to make money. They don’t trade in the market themselves. Instead, they earn money from commissions and the difference between the buying and selling price of securities.
This business model is very profitable. But in recent years, both IG and CMC have seen income fall as regulators clamped down on risky trading products. The coronavirus crisis, and subsequent stock market crash, seems to have put an end to this decline.
Considering their performance in the first quarter of the year, it seems highly likely both will benefit if there’s another stock market crash in the second half of 2020. They may also continue to profit if stock markets around the world continue to rally throughout the rest of the year.
As such, if you’re looking for an investment that has the potential to profit in the good times and the bad, CMC and IG could fit the bill perfectly.
Both offer a level of certainty and predictability in a highly uncertain time. They may also return some of their stock market crash windfall to investors later in the year with special dividends.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.