Get Rich From Retiring Baby Boomers With This Little-Known Stock
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 United States.
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 share.
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 growth.