At least that’s what every market analyst on Wall Street and cable says.
And they’ve got a point (well, three points).
First, there’s Donald Trump’s aggressive economic stimulus – including that $1 trillion infrastructure plan. Second, traders are moving their cash into a very attractive stock market. Third, the Fed will likely raise rates by the end of the year.
All three of these are bad for bonds – hence, the $1 trillion rout we saw over the past week or two.
There’s just one problem with this line of thinking. It misses the role bonds play for conservative investors, retirement funds, and other institutions who want the yield and plan to hold bonds for years.
And so, this market for fixed-income investments remains both active and huge – $40 trillion huge.
Why are we talking about the bond market? After all, we’re not going to start bypassing big tech winners in favor of bonds. Especially not now.
However, I have pinpointed a little-known tech leader that’s changing how investors are buying and selling bonds. In other words, this Singularity Play is rapidly changing “How We Live”…
It passes through all five of our Tech Wealth Blueprint “filters.”
And it’s growing like crazy – so fast that I think you could hit triple-digit profits in less than three years.
Ripe for Disruption
First off, before I reveal that company, let me explain why, if you want to make money, you have to pay attention to the bond market – even if it’s temporarily on life support.
Consider that roughly 6,500 companies are traded on the major U.S. stock exchanges. Though that’s quite a lot to choose from, it’s only a fraction of the more than 200,000 types of unique taxable bonds offered.
Let’s use a famous big-cap tech leader as an example. Apple Inc. (Nasdaq: AAPL) offers only one common stock. But at any point in time, it may have between 15 and 20 bonds out there.
Here’s the thing…
Despite the rise of the web and electronic trading, most bond broker dealers still buy and sell directly with each other. According to studies, electronic trading accounts for little more than 20% of all bond transactions.
That’s actually great news for tech investors.
If any market is ready for disruption – a fertile unplowed soil in which to make a lot of cash – it’s bond trading…
Room to Grow
MarketAxess Holdings Inc. (Nasdaq: MKTX) is the premier high-tech firm serving the bond market
MarketAxess now handles 95% of all electronic bond deals. That sounds like a lot – like market saturation, even – but remember that statistic I just shared with you.
That means it handles well under 20% of all bond trades made today – and so this is a firm with plenty of room to grow.
A few weeks ago, I introduced the Singularity Nexus – the four “windows” of opportunity… pools of innovation – that have arisen in the Singularity Era. MarketAxess fits snugly into the “How We Live” window.
But the Nexus is just one half of the way I look at each and every potential Singularity Play.
Beyond it, I also put every investment I research through Your Tech Wealth Blueprint. You also can use these five “rules” to help you become a much savvier and far more profitable tech investor. I crafted them to help you identify the biggest market trends – and the Singularity Plays best positioned to yield hefty profits.
So, to show you why MarketAxess is a profit opportunity you should strongly consider adding to your portfolio, I’m going to run it through all five Tech Wealth Blueprint “filters” – and see how it stacks up…
Tech Wealth Rule No. 1 – Identify Companies With Great Operations
First and foremost, I always look for well-run firms with top-notch leaders – and you can do so, too.
The CEO and founder of MarketAxess is second to no one in the bond market. Richard M. McVey began his career at storied Wall Street firm JP Morgan.
He spent four years beginning in 1992 serving as managing director and head of JP Morgan’s North American futures and options business and then served as head of North American fixed-income sales and institutional client relations.
McVey founded MarketAxess in 2000, and then took it public in 2014.
Along the way, he’s earned several meaningful awards, including Ernst & Young’s National Entrepreneur of Year for Financial Services. Plus, Institutional Investor has listed him in its “Tech 50” rankings eight times.
Tech Wealth Rule No. 2 – Separate the Signal From the Noise
To create real wealth, you have to ignore the hype and find companies with rock-solid fundamentals.
MarketAxess is no hype machine. There’s no fancy marketing or buzz words. Instead, its website offers clients a wealth of information without a hint of hard sell.
And this company is hugely successful at a time when Wall Street thinks the bond market is set to get slammed with higher interest rates from the Fed. Better yet, a rate hike is actually be good news for MarketAxess – and its investors. A big change like that means trading volume will rise sharply.
MarketAxess doesn’t care if the bond market goes up or down – as long as trades are being made.
The firm has very strong fundamentals. It boasts a 49% operating margin and a 27% return on equity. This is a company with nearly $300 million in cash and investments on hand and almost no debt.
Tech Wealth Rule No. 3 – Ride the Unstoppable Trends
We look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
There’s no question that MarketAxess has this base covered as well. Electronic trading has become the standard way in which nearly all financial transactions take place today.
However, the bond market is only just now moving into full digital trading. That gives the firm a long runway to ride the electronic shift.
Plus, despite low interest rates, trading volume for bonds and other fixed income assets continues to grow. In 2009, the sector had a total volume of roughly $26 trillion. This year that figure is nearly $40 trillion, up 54% in just seven years.
Tech Wealth Rule No. 4 – Focus on Growth
Companies that have the strongest growth rates almost always offer the highest stock returns.
Between 2010 and the end of last year, MarketAxess saw average sales growth rate of 17%. It grew earnings over the period by an even better amount, averaging a blended rate of 23.5% for operating income and adjusted earnings.
The firm keeps adding new products and clients. In April, it launched a municipal bond platform and already has signed up 250 investors and 100 dealer firms.
In all, it has 1,000 clients, up 30% since September 2014.
Rule No. 5 – Target Stocks That Can Double Your Money
This is where we look at the firm’s earnings growth and see how long it will take the firm to double profits. By doing that we can figure out how long on average it should take for the stock to see triple-digit gains.
I’ve gone through the firm’s financial in detail and I’m projecting earnings per share will grow by an average 22% over the next five years.
Now we use what I call my “Doubling Calculator.” Mathematicians call it the Rule of 72.
Divide the compound growth rate of 22 into the number 72. We find that it should take just a little more than three years for MarketAxess to give us 100% gains.
With a market cap of $5.6 billion, the stock trades at roughly $148 a share. It does have a fairly high forward PE ratio of 38, which is about two times that of the Nasdaq 100 index.
But that’s a rate in line with other tech-centric growth firms. Given its stable but huge long-term growth and bright future, I believe it’s worth paying a PE premium for a high-quality stock like this.
The Road to Wealth Is Paved by Tech.
And this is the kind of tech stock that you buy and hold for years to come as the bond market’s own “Road to Wealth” shifts to tech – via MarketAxess’s premier platform.
Now, I’ll be spending the next few days with family and friends celebrating our blessings and our freedoms. I hope you’re able to do the same.
Have a great Thanksgiving. I’ll see you back here soon.
- Strategic Tech Investor Special Report: On August 1, the Stock Market Achieved Singularity…
- Strategic Tech Investor Special Report: Your Tech Wealth Blueprint.