Aging baby boomers have been a topic among investors for quite
some time. After all, with a demographic of more than 76 million in
the United States, they're the biggest -- and richest -- generation
in history. With ababy boomer turning 60 every eight seconds, this
segment is expected to comprise 20-25% of the U.S. population in
about 20 years.
As a group, baby boomers have accumulated alot of wealth. With
the average baby boomer predicted to retire with $500,000 and $1
million in assets, this group is estimated to have $7 trillion in
wealth, which accounts for nearly 70% of the total wealth in the
Most of the individual clients I counsel fall into this
demographic. My typical new client is a male baby boomer with most
of his accumulated assets invested into a former employer's401k ,
IRAs and his homeequity . He's invested in stocks to save for
retirement, but now he is concerned with making these assets last
for the rest of his life.
He is well aware hisinvestments are the key to his retirement,
but he is afraid to make a mistake with them. He's lived through
the 1987Black Monday stockmarket crash, the dot-com bust and the
most recent subprimemortgage crisis. Some of these boomers have
aninheritance coming from parents, but they are also concerned
about their aging parents' long-term care. They may also be paying
off their kids' college loans, which makes them concerned about not
having enoughfunds to cover all their expenses. It's no wonder they
have been increasingly becoming more risk-averse.
So as they get closer to retirement, they've been shifting
toward low-risk investments. Many have already begun shifting their
portfolios from stocks tofixed-income securities, a trend that's
likely to continue for many years to come.
And there is one particular stock poised to explode as boomers
become more conservative with their investments --
MarketAxess Holdings Inc. (Nasdaq: MKTX)
The company operates an electronic-trading platform that
allowsinvestment professionals to tradecorporate bonds and other
types of fixed-income instruments. It has more than 900
activeinstitutional investor clients and amarket share of 12.5%.
Through its proprietary Corporate Bondticker service, MarketAxess
provides fixed-income market data, analytics and compliance tools
that help its clients make trading decisions.
Another trend thatwill greatly benefit MarketAxess' top line is
the recent popularity of corporate bonds oversovereign debt . As
countries' financial positions and debt ratings continue to worsen
and as corporations improve their impressive liquidity,
institutional investors are likely to flock to corporate bonds to
get higher yields with less risk.
MarketAxess also has an unusually secure financial position for
a company of only $1.15 billionmarket cap . The company has strong,
consistentfree cash flow and zero debt. Since 2009, it's been
paying a quarterlydividend of 11 cents a share and it recently
announced aspecial dividend of $1.30 a share scheduled for Dec. 27.
The company has more than $150 million incash it can use to
purchase other electronic-trading companies and increase its market
Although there isn't muchrevenue growth right now, it is still
consistent and the company enjoys an averageoperating margin of
44%. Another strong indicator of the company's compelling position
is the fact that 97% of the stock'sfloat is owned bymutual funds
and institutional investors.
Take a look at MarketAxxess since 2008 when the first baby
boomers started to retire:
Why MarketAxess looks like a great buy
MarketAxess is quietly becoming the largest liquidity pool for
fixed-income trading, so I would anticipate its market share could
go from the current 12.5% to as high as 20% as acceleration gains
steam. I also like its high fixed-fee income stream, which should
help the company if revenue declines due to less tradingvolume .
Finally, the stock is attractively priced compared to competitors.
Its price-to-earnings/growth (PEG ) ratio is 1.37, below the
industry average of 1.53 and sector average of 5.70. Moreover, its
year-over-year revenue growth of 10.5% is the highest within its
investment market operators industry.
Risks to Consider:
Overall trading volume of high-grade U.S. corporate bonds
decreased every year from 2003 through 2008 prior to the major
shift in baby boomers retiring. This decreased MarketAxxess'
market. However, corporate-bond trading volume increased
dramatically in 2009 because of many factors including constrained
bank lending, fewer asset-backed securities being issued and larger
volumes of outstanding corporate bonds. If trading volume slips
back, then it could hurt MarketAxxess' profitability. Also, its
European exposure could negatively affectearnings if there is
further decline in the revenue coming from Europe.
Action to Take -->
That being said, the trend has been very favorable for MarketAxess
and I expect it to continue. Buy MarketAxess up to $36 a share. It
is a strong pick for any long-term investor who is looking for a
safe dividend-paying investment with the potential for long-term
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