This time, Wall Street didn’t freak out.
In fact, the S&P 500 had its best day in eight sessions last Thursday as stocks across the board entered a rally.
You can chalk that up to the fact that just the day before the Federal
Reserve struck a very dovish tone, suggesting interest rates won’t rise far or fast this year.
What didn’t get much notice is just how volatile the bond market had become over the past six weeks.
Here’s the thing. Choppy bond trades by definition means there’s quite a frenzy of both buying and selling.
And that’s great news for savvy tech investors.
Let me explain. Even on a “calm day,” the nation’s bond market is highly active. We’re talking a daily volume of $700 billion, more than three times that for stocks.
And it’s our mission to look for a tech angle into this massive segment that will give us market-crushing profits.
Today, I’m going to reveal a firm that is doing just that.
And I’ll show you the five reasons why this is the single best way to play this massive market…
Where the Money’s At
Please don’t misunderstand me. I’m in no way suggesting you bypass big tech winners and other equities in favor of bonds, even if we see higher interest rates ahead.
It’s just that many investors buy bonds or bond funds for the income, and give up a lot of growth. But as I always say – avoid false dichotomies. You want at least a portion of your “fixed income” portfolio to give you so-so growth.
Otherwise, inflation can eat up a lot of your paper profits. If we could just capture a fraction of the bond market’s amazing volume, we stand to make a lot of money.
Now, the U.S. stock market boasts roughly 6,500 shares traded on major 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.
Here’s the thing. Despite the rise of the Web and electronic trading, most broker dealers still buy and sell directly with each other. Analyst say that electronic bond trading only accounts for a little more than 20% of all transactions.
As you can see, that’s quite a fertile field for MarketAxess Holdings Inc. (Nasdaq:MKTX). This is the premier high-tech firm serving the bond market, and it’s a company with a lot of room to grow.
For instance, the tech leader in this space right now handles 95% of all electronic bond deals. But that is still less than 20% of all bond trades made today.
To show you why this exciting stock still has plenty of upside ahead, let’s run it through my five filters for building wealth with market-crushing tech winners.
Tech Wealth Builder Rule No. 1: Great companies Have Great Operations.
I’m talking about well-run firms with top-notch leaders.
And MarketAxess Holdings has a CEO/founder who is second to no one in the fixed income market. Richard M. McVey began his career at storied Wall Street firm JPMorgan Chase & Co. (NYSE:JPM).
Beginning in 1992, he spent four years 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.
Concannon has a Master’s degree in business, as well as a law degree. He’s also had stints at Nasdaq, Instinet, and Cboe Global Markets, one of the world’s largest exchange holding companies.
And just a few weeks ago, at MarketAxess, McVey moved to strengthen the senior team. He named Chris Concannon as president and chief operating officer.
Tech Wealth Builder Rule No. 2: Separate the Signal From the Noise.
To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
The firm has that in spades. It boasts a 49% operating market, and a 27% return on equity. This is a company with nearly $267 million in cash, and stockholder’s equity is seven times greater than the firm’s total liabilities.
Right now, Wall Street looks at the bond and stock markets as plain binary choices. The heard doesn’t seem to grasp the major fundamental here. As the world goes digital, there’s plenty of upside for a firm that is leading the way.
While Wall Street busies itself handicapping the Fed’s actions, our team at MarketAxcess is getting ready for more trading volume. They recently added a module that lets clients use data analytics to improve their bond trades, and now count more than 1,500 active clients.
Tech Wealth Builder Rule No. 3: Ride the Unstoppable Trends.
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 really moving into full digital trading, with most transactions occurring between trading houses. That gives the firm a long runway to ride the electronic shift in play.
Plus, despite low interest rates, trading volume for bonds and other fixed income assets continues to grow. This year that figure is nearly $40 trillion, up more than 50% in less than a decade – just in the U.S.
When you add in the rest of the world, that market climbs to $100 trillion. By comparison, Dow Jones Indices gauge the total global stock market at roughly $64 trillion.
Now, another unstoppable trend you’ll want to take a look at is the massive technological buildout of 5G wireless technology.
You may not yet know what 5G really means for you yet, but you’re going to want to find out, fast.
It could be headed into your neighborhood as early as this week. And it could mint a whole new generation of millionaires.
In fact, we’re seeing projections that place 5G’s impact could amount to a $12 trillion market.
And we’ve figured out how you can claim your share. This $6 dollar a share company is perfectly poised to dominate this unstoppable tech trend. And it has the chance to shower 1,000% returns on the folks who move quickly.
Tech Wealth Builder Rule No. 4: Focus on Growth.
Companies that have the strongest growth rates almost always offer the highest stock returns.
Over the past three years, it has grown sales by an average of 12% a year, which is more than four times the average GDP growth in the U.S.
And MKTX is crushing the returns of any bond fund. For instance, the bellwether Vanguard Long-Term Bond ETF (NYSE:BLV) is up just 1.8% so far this year. By contrast, MKTX has gained 10.5%, or 483.3% more than the BLV benchmark.
And the firm keeps adding new products and clients. Last April, it launched a municipal platform, and already has signed up 250 investors and 100 dealer firms. In all, it has 1,000 clients, up 30% since September 2014.
Tech Wealth Builder 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 its profits. By doing that we can figure out how long on average it should take for the stock to roughly double.
I’ve gone through the firm’s financials in detail, and I’m projecting earnings per share will grow by an average 24% over the next five years.
Now let’s use what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound growth rate of 24 into the number 72. We find that it should take roughly three years for MarketAxess to give us 100% gains.
Just to be more conservative, I’m pushing that out to five years before we get our free trade in this exciting winner.
This is the kind of stock that you can hold as a foundational play for many years to come.
And we can steadily turn whatever happens with the Fed and interest rates to our long-term profitable advantage.
Cheers and good investing,
Michael A. Robinson