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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3. GFI Group ( GFIG)

Goldman upgraded GFIG to "buy" from "neutral," arguing it has been one of the cast-aways of a financial subsector it refers to as "the market structure group" for the past three years due to a decline in credit default swap volumes, leading to shrinking margins.

However, Goldman's analysts point to GFIG's 5% dividend yield and what they call "two very attractive data assets" in Trayport and Fenics, as well as a net cash level of $62 million.

They estimate the core brokerage business is valued at just 4 times earnings.

They also believe there is a 10%-20% GFIG becomes "involved in an M&A transaction," as a result of its valuable over-the-counter trading and data platforms. Their 12-month price target of $5 implies 19% upside from Wednesday's closing price of $4.10, though the upgrade appeared to have a big effect as GFIG shares were higher by more than 10% in early trading Thursday.

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2. Knight Capital Group ( KCG)

Goldman's analysts added Knight to their "conviction buy" list, arguing "increased equity volatility will lead to higher average daily dollar volume traded, and wider spreads which increase pre-tax margins."

They also congratulate Knight's management for recently announced expense cuts, especially in the Asia Pacific equities area.

Knights gets additional praise for its shift to self-clearing--a development that should improve second half earnings, while "improvements in its burgeoning fixed income franchise and lower compensation costs," bode well for 2012, write Goldman's analysts.

Knight also has one of the highest buyback authorizations as a percentage of its market cap, according to Goldman's research. The 18% figure puts it in eighth place among financial companies in Goldman's coverage universe. The $13.50 price target represents 24% upside from Wednesday's close of $10.88 over the next 12 months.

Knight describes itself in its annual report as "a global financial services firm that provides access to the capital markets across multiple asset classes to a broad network of clients, including buy- and sell-side firms and corporations."

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1. Nasdaq OMX Group

Goldman's analysts added Nasdaq to their "conviction buy" list, with a $27 target price offering more than 25% upside from Wednesday's close, though the shares were up sharply early Thursday.

"The upside is driven by a 20%-plus cash flow yield from operations and the possibility for an accretive share repurchase announcement in the second half of 2011," Goldman's analysts write.

Goldman's analysts note they "have long been attracted to the Nasdaq story," arguing it has a "reasonable multiple for a very competitive market."

They are also impressed with Nadaq's management, arguing they post strong margins--46% in 2010, for example--"wringing every bit of profitability from the markets."

Another plus is that only 35% of Nasdaq's revenues come from transactions, "thus the relative stability of its earnings/cash flow are attractive in a volatile market." They also we expect a share repurchase authorization in the second half of this year which they expect will be well received by investors.

Sandler O'Neill analyst Richard Repetto is also bullish on Nasdaq, assigning it a "buy" rating and a $33 price target.

"Valuation remains compelling on both an absolute and relative basis," Repetto wrote in an Aug. 9 report. He argues Nasdaq's valuation is an "outlier" compared to competitors, trading at a multiple that is more than five points lower.

This discount is "unjustified," Repetto argues, since Nasdaq has reported two record quarters in a row in terms of earnings.

>>To see these stocks in action, visit the 4 Financial Stocks for Volatile Markets portfolio on Stockpickr.

-- Written by Dan Freed in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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