With the Federal Reserve’s increase of interest rates looming on the horizon, many investors will be turning more of their attention to financial services stocks, as these types of stocks generally perform especially well in higher interest-leveled environments. One financial industry that provides current value and potential for success, and would benefit from the imminent interest rate hikes is the investment brokerage firm industry.

When interest rates are raised, investment brokerage firms stand to benefit greatly due to their business models. When an individual puts a sum of money into a brokerage account often times there is an amount of money that is uninvested, and the brokerage firm will invest it for that individual. This uninvested amount is referred to as “the float”. The brokerage firm makes money off of interest coming from the float, and this can be up to 50% of a brokerage firm’s revenue which means when interest rates are higher, brokerage firms stand to gain even more in interest from the float and see boosts in revenue.  This boost is revenue stands to improve the company’s stocks as well, meaning potential profits for investors.

Although seemingly strong as a collective group with a high Zacks Industry Rank of 113/265 (Top 43%), not every stock in the investment brokerage firm industry is a great pick right now. Investors need to compare and contrast different investment brokerage firms, as each stock has different strong points and weaknesses, as well as different levels of potential to bring profits to a shareholder. While there are many options in the industry, the following are 2 picks that investors should probably stay away from right now. We will also cover 2 buy ranked stocks that warrant consideration for buying in the short term.
 
Currently at the Bottom of the Brokerage Firm Barrel 
 
KCG Holdings Inc. (KCG - Snapshot Report) is one of the two suggested stocks to avoid in the investment brokerage industry, as several indicators from Zacks are below industry averages. Indeed, other stocks in the industry serve as better options to invest in.
 
There are several reasons KCG is not one of the better stocks one could buy in the industry. Let’s start with the fact that the company was recently downgraded to a Zacks Rank #4 (Sell). Along with the company’s low Zacks Rank, the stock currently has several figures that are considered unfavorable when compared to industry averages and higher ranked stocks in general.
 
One thing that KCG lacks is a strong projection for the company’s sales growth, which is currently not even positive at -.36%. The stock does not have very good momentum either, as the last 4 weeks have had a price change of -8.75%. Also, over the last 4 quarters the company has not been able to meet earnings estimates, with each of the last 4 quarters having a negative earnings surprise. The average surprise over the time period is an unfavorable -84.72%.
 
Analysts see a bleak outlook for the company’s earnings this year as well, as clearly indicated from 2 analysts lowering their estimates for the current year in the last 60 days. 2 analysts also lowered their estimates in the last 60 days for the next fiscal year as well.
 
Another stock whose Zacks Rank and figures suggest that it should be avoided and or sold out of a portfolio is Ladenburg Thalmann Financial Services (LTS -Snapshot Report). The company is currently a Zacks Rank #5 (Strong Sell), and the stock has several less than favorable figures to go along with it.
 
Ladenburg Thalmann’s net margin is one figure that specifically sticks out. The company has a net margin of 2.29%, much lower than the industry average of 7.89%. The stock could also be considered to be lower in value than others in the industry. LTS’s price to cash flow ratio is higher than the industry’s average of 10.74, in addition to its earnings yield being a poor -4.06%, and its cash flow per share being just $.27 per share.

LTS also has an extremely poor projection for its year over year growth estimate for its earnings for the current year at -1,500%. Also the company missed badly on the estimates for its earnings last quarter, showing a -66.67% surprise.

Clearly, KCG Holdings and Ladenburg Thalmann are two stocks in the investment brokerage industry that should probably be avoided by investors.  On a more positive note, though, there are several stocks in the industry which are ranked much higher and are solid options for investors to add into their portfolios.
 
Picks Poised for Success
 
Raymond James Financial Inc. (RJF - Analyst Report) could definitely be considered one of the better looking stocks in the investment brokerage industry. The stock is currently a Zacks Rank #2 (Buy) and the company’s figures and earnings estimates are both positive for this quarter as well as future periods.
 
A stock with value is something that investors like to see. If this sounds like you, RJF would be considered a solid option. The stock has a B Style Score from Zacks in regards to value, and the numbers behind the ranking show why. RJF has a favorable PEG ratio that is .98, in addition to a PE ratio on par with the industry average and a Cash flow per share of $3.69 per share that is above the industry average of $1.59 per share.
 
Raymond James also seems to be poised for solid growth in terms of sales and earnings moving forward, something many investors are looking to see in a company. In terms of sales, the company has a solid projected sales growth figure of 7.32%. RJF’s earnings are also estimated to grow, as the year over year growth estimate is 7.53% for the current year, and 17.79% for next year. The company has also been able to meet and or beat estimates in 3 of the last 4 quarters, with an average surprise of 3.45%.
 
Another investment brokerage firm that currently holds great potential for growth, profits and success is BGC Partners Inc. (BGCP - Snapshot Report). The stock is a Zacks Rank #2 (Buy), and has several favorable pieces of data backing up its “Buy” rank.
 
If an investor is looking for a stock with great growth potential in the investment brokerage industry, BGC Partners is one of the top stocks to consider. The company has a substantial projected sales growth figure of 49.60%.  It also has solid earnings growth estimates as well. For the current year, BGC has a year over year earnings growth estimate of 23.39%, with next year looking positive as well, having an earnings growth estimate of 16.99%. The company has seen success living up to or even beating the estimates predicted, with earnings meeting and or beating estimates in 3 of the last 4 quarters.
 
Despite its high potential for growth, BGC would not be considered overly expensive. This can be seen in the company’s PE ratio of 11.45, which is below the industry average of 16.58. BGC also has a solid price to sales ratio of 1.14 which helps investors to know that their hard earned dollars are being matched by the company’s sales dollars.
 
Bottom Line
 
While the investment brokerage firm industry is already solid, as shown by the high Zacks Industry Rank, the future still holds great potential as the firms in the industry stands to benefit from imminent interest rate hikes. Not every company’s stock is a great option for investment though, and clearly from the date discussed above there are stocks with great potential for success.  There are stocks to avoid, but with help from data and indicators provided by Zacks, investors can help weed out the best picks in the industry.
 
Raymond James Financial and BGC Partners are clearly two stocks that investors should immediately consider for addition into their portfolios as they are two of the better picks in the industry as a whole. They have a likely chance of bringing success to those willing to buy in as time moves forward.