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4 Financial Stocks for Volatile Markets

Stocks in this article: XLF NDAQ KCG GFIG ICE

NEW YORK ( TheStreet) -- Financial stocks have taken a beating all year, and the recent period of market volatility has been no exception.

From the Aug. 3 close through Wednesday, the Financial Select Sector SPDR (XLF), a widely-followed exchange-traded funds that tracks the financial sector, has fallen 15.46% versus a 9.92% drop for the Dow Jones Industrial Average during that same time period.

As a result, it may make sense to add financial stocks to your portfolio, though if you are concerned about volatile markets, that presents a challenge.

Goldman Sachs made several changes to its "conviction buy" list in light of the recent market volatility, and has added some names it expects to benefit, while also upgrading other stocks that did not quite make the "conviction buy" list.

"Market volumes and volatility have picked up dramatically over the last few weeks, which should lead to upside estimates for 3Q for a number of companies," states a report published Thursday.

The group is comprised entirely of market structure and exchange stocks, which, according to Goldman's report are "direct beneficiaries of the recent volume surge and any continued volatility in various equity and fixed income markets."

Goldman's analysts note that they "do not expect elevated volumes to persist indefinitely," but, they argue, "various global/sovereign issues are likely to keep equities, rates, options, commodities, and foreign exchange activity elevated."

Here, then, are Goldman's picks.

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4. InterContinental Exchange (ICE)

Such is the nature of securities exchanges these days that the most successful ones are those American investors are least likely to have heard of.

In part that's because the exchanges with the best prospects are in Brazil and China. One exception is Atlanta-based InterContinental Exchange, a nonentity at the start of the decade that has seen its stock leave U.S. competitors like NYSE Euronext (NYX), CME Group (CME) and Nasdaq OMX Group (NDAQ) in the dust since it went public in 2005.

In upgrading ICE to "buy" from "neutral," Goldman's analysts call ICE "the best organic growth story in our coverage group," noting its exposure to volatile energy and commodity markets. They also believe the shift to central clearing of "over the counter" products will be a big boon to ICE. Their 12-month price target of $130 implies 18% upside from Wednesday's close.

ICE's growth mirrors that of energy markets. It was founded ten years ago when giant energy trading companies, including banks like Goldman Sachs (GS) and Morgan Stanley (MS), and oil supermajors including BP (BP) and Royal Dutch Shell (RDS.A) were looking for an electronic energy trading platform to compete with Enron.

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