Morgan Stanley’s Highest Conviction Stocks: Top 20 Stocks To Buy

7. Nasdaq, Inc. (NASDAQ:NDAQ)

Share Price Upside: 22%

Number of Hedge Fund Investors In Q2 2024: 37

Nasdaq, Inc. (NASDAQ:NDAQ) is one of the biggest financial markets and associated services providers in the world. Apart from the well known NASDAQ exchange, it also operates and provides money laundering detection and risk management platforms. The fact that the NASDAQ exchange is the second largest stock exchange in the world in terms of market cap, and it houses all of the biggest technology companies provides Nasdaq, Inc. (NASDAQ:NDAQ) with a wide competitive moat that is unlikely to go anywhere if the exchange listing model remains in its current form. Similarly, money laundering detection and associated financial technology services stand to benefit from the growth in AI use cases as well as growing digitization in the world to help Nasdaq, Inc. (NASDAQ:NDAQ) diversify its business to an extent. In fact, during Q2 2024, Nasdaq, Inc. (NASDAQ:NDAQ)’s revenue was $1.1 billion, out of which 78% or $901 million was from its non exchange business. This means that as capital markets struggle in tough rate environments, Nasdaq, Inc. (NASDAQ:NDAQ) can benefit from non related revenue but the firm still remains vulnerable to the broader economy and particularly its impact on business spending.

Oakmark Funds mentioned Nasdaq, Inc. (NASDAQ:NDAQ) in its Q2 2024 investor letter. Here is what the fund said:

“Nasdaq is a global technology company that pro- vides platforms and services for capital markets and other industries. Over the past decade, under the leadership of CEO Adena Friedman, Nasdaq has transformed from a traditional equity exchange into a collection of fast-growing, high-quality software and data businesses with the majority of revenue coming from non-exchange segments. Nasdaq’s recent acquisition of Adenza led some investors to question management’s capital allocation disci- pline. However, we believe the subsequent share price reaction more than compensates for the risk that Nasdaq overpaid for Adenza. More importantly, the experience seems to have catalyzed a renewed focus on organic growth, debt pay- down, and capital return. Despite Nasdaq’s poten- tial for faster than average growth, high mix of recurring revenue, and impressive operating margins, the stock trades at a P/E multiple in line with the broader market. We were pleased to purchase shares in this excellent business for an average price.”