Moodys Stock And 2 Bond Market Plays If CPI Shifts Rate Cut Expectations

With the July CPI report expected to show only modest inflation and Treasury yields sitting near 4.68% on the 10 year, the bond market is quietly setting the stage for a bigger story in short duration investment grade funds. If inflation surprises, interest rate expectations could shift quickly, which tends to matter a lot for these lower risk corners of the market. This article walks through 3 stocks from the screener that look especially exposed to this macro swing and explains why their bond focused profiles might appeal to cautious investors watching the next move from the Federal Reserve.

The three stocks below are just a starting sample from this short duration investment grade theme, and the full screen surfaced 24 more companies with equally detailed bond focused narratives that are not covered here. To get straight to the broader opportunity set, analyze and identify your own highest conviction ideas through the Short-Duration Investment-Grade Bond Funds screener.

BGC Group is a New York based brokerage and financial technology company that sits at the heart of trading in government and corporate bonds, interest rate and credit derivatives, foreign exchange, and other fixed income products. Almost all of its roughly US$3.2b in revenue comes from providing brokerage services across these markets, which ties directly into the surge in activity when investors reposition around moves in inflation and interest rates. With a market cap of about US$4.8b, BGC Group is large enough to matter in global fixed income trading but still small enough that shifts in volumes and market share can be meaningful for shareholders.

For investors watching the July CPI print and the potential for a pick up in short duration trading, BGC Group offers a direct line into the bond and rates activity that tends to spike when expectations for Fed cuts move. The company has reported solid earnings momentum in recent years and is investing in electronic platforms, prediction markets and even a compute capacity marketplace, which could broaden its revenue mix beyond traditional brokerage. At the same time, the balance sheet leans heavily on external borrowing and recent results included a sizeable one off gain, so it is important to look closely at the quality and resilience of earnings before deciding how this stock fits into a conservative bond focused strategy.

BGC Group’s push into electronic platforms and new markets could be masking an underappreciated shift in its risk and return mix. Before the next Fed move reshapes bond flows again, review the 2 key rewards and 2 important warning signs

Build your own short duration bond opportunity list

BGC Group and the two other stocks in this article all surfaced from a single screener, but the real edge comes from setting filters that fit the way you think about risk and return. Use our flexible Screener to blend metrics like valuation, balance sheet, growth and dividends into your own shortlist, or tap into our curated Investing Ideas for ready made themes to research further.

Moody’s is a global risk assessment company that rates corporate and government debt and sells data, software and analytics that help banks, insurers and asset managers assess credit and regulatory risk. The Moody’s Investors Service ratings arm generates about US$4.7b in revenue, while Moody’s Analytics adds roughly US$3.7b, giving the group a sizeable and diversified fee base. With a market cap of around US$82.5b, Moody’s sits in the top tier of financial infrastructure companies worldwide.

Investors watching the July CPI print and potential shifts in bond issuance should keep an eye on Moody’s. The company effectively charges a fee every time issuers tap investment grade markets, and its analytics arm offers recurring revenue that can help smooth bond market swings. Recent results indicate that earnings growth has been solid and profitability metrics are strong. Analysts have lifted price targets after better than expected Q2 results. The stock still carries high leverage, and all of its funding comes from external borrowing. That mix of cash generation, regulatory moat and balance sheet risk makes Moody’s a high quality but finely balanced way to gain exposure to a possible pick up in short duration bond activity.

Moody’s earnings momentum and strong profitability metrics can easily distract from the real story in its credit moat and leverage. For the full picture, see the 3 key rewards and 1 important warning sign

Artisan Partners Asset Management is a Milwaukee based investment manager that runs equity and fixed income portfolios for institutions, charities and funds across global markets. Almost all of its roughly US$1.25b in annual revenue comes from investment management fees, and the company has a market cap of about US$3.5b.

Investors looking at short duration bond themes may want Artisan Partners Asset Management on their radar because it sits at the center of where those allocations are actually run and priced. The firm has high returns on equity, a high dividend yield near 9.7% and strong recent earnings quality. However, it is also dealing with modest growth forecasts, a costly push into more teams and strategies, and reliance on external borrowing rather than deposits. Recent record assets under management, coupled with the wind down of its U.S. value team and ongoing net outflows, create a mix of income appeal and execution risk that deserves a closer look once the July CPI report resets rate expectations.

Artisan Partners Asset Management’s high dividend yield and strong returns on equity could be masking where its next chapter really leads. Get the full story in the full narrative for Artisan Partners Asset Management

Seeking Alternatives Before The Crowd?

Fresh themes can gain breakout momentum quickly and then move from under the radar to fully priced. Scan these curated ideas before the window closes and consider acting early.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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