Clay Mahaffey, CFA and head analyst for The National Eagles and Angels, tells national radio show host George Jarkesy about a company he believes will be the next Priceline.com (PCLN) -- MarketAxess Holdings (NASDAQ:MKTX). This is a transcript of their conversation.
George Jarkesy: That's right, it is time for Stock Watch and I have the chief analyst of the National Eagles and Angels Association with me, Clay Mahaffey.
Clay Mahaffey: How you doing George?
Jarkesy: Good. It was a great NEAA meeting today here in Dallas. Hundreds of members joined us for the informative and positive meeting, building America one company at a time.
Mahaffey: It was, it really was.
Jarkesy: There were great companies here today, and in sharing about our Micro Dynamic portfolio, I've got to tell you, we've got so many members that are pleased with how that portfolio is performing for them and how well your stock picks are performing.
Mahaffey: Yes, that's right. George, I've got a really interesting new stock today. I like this stock for its high growth and its game changing technology. I think this is the next Priceline. I bet you never heard of this company. It's called MarketAxess. It is a leader in building an electronic trading desk for fixed income securities. This is government, corporate bonds, high yield, and things of that type.
In the United States, this is an $800 billion per day market. It's mostly conducted between brokers and dealers over the phone in the old way that it has been done for more than 50 years. MarketAxess wants to take over this market with its electronic platform. It has patents. Its system enables the bond owners -- the institution to get multiple, simultaneous executable bids or quotes on any offering that they have.
MarketAxess offers a cost reduction between 25% and 75% of the cost depending on the size of the order. It's huge in the commodity business like bond trading.
In addition, the broker role we've talked about before is restricting the large banks from proprietary trading. That's going to move them out -- they're the big broker dealers. That's going to open up new territory for MarketAxess to come in. It is getting traction. It has 87 broker dealers signed up. Over 850 institutions are using the product every day. It also provides transparency, a lot of things you just can't get in the old-boy system that has been going on for 50 years.
Now the problem is the stock fell 80% in the crash in 2008. The stock just came way down. The good news is it has recovered. The market cap is around $1 billion. The sales and earnings are growing at 30% per year and that's a fraction of the market that it is going after. This is an absolutely huge market in revolutionary technology.
Jarkesy: Well, that's very exciting. I'll tell you, you know a lot of people don't realize just how behind the bond market efficiencies are over the stock market.
Jarkesy: And the transaction dollars are so much as to what's going on -- especially when you go globally. MarketAxess plans to go international?
Mahaffey: Yes, it is already in Europe. The company put out a press release of putting its platform up in Canada. I think it is going to flip-flop. You know a new technology comes in and it builds a position, builds a position. At some point, the dynamic completely goes the opposite way to the electronic version. I think that's going to happen within a few years and this company seems to be the leader in this type of technology. It has a nice patent; it only has two or three competitors, that's a good place to be.
Jarkesy: Well, it has been growing, too. Its revenue and earnings growth seems to be consistently going up.
Mahaffey: Every year, it is profitable from the get-go. It's not that capital-intensive; there is not that much risk, the management team is from the industry. They really know what they are doing. It builds traction -- I mean, look at the 25% lower cost to a bond trader, portfolio management is a lot.
Jarkesy: You know, it's the type of business you can't have a very high capital expense to do this global expansion.
Mahaffey: It's very scalable from what I can tell.
Jarkesy: All right, MarketAxess sounds like a very exciting company. The reason he brings these to you is because they are, in his opinion, cheap because of inefficiencies in the market. The company is growing and yet the stock has not caught up with where the company is and is headed. Clay Mahaffey, thank you so much for being on the show today.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: The George Jarkesy Show or the National Eagles and Angels Association are not investment advisors. Any content published by The George Jarkesy Show or the National Eagles and Angels Association does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. All content on The George Jarkesy Show Website and The National Eagles and Angels Association is produced independently of any advertising relationships.