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As we start a new year, many of us are making some resolutions. And if yours included one about adding more to your investments, you may be looking for stock ideas. Motley Fool Chief Investment Officer Andy Cross has a couple that he's watching with enthusiasm. The first is one that everyone knows: Alphabet (GOOGL -0.15%) (GOOG -0.19%), because it has its fingers in a whole lot of profitable pies.
The second, though, is one that's far less known: MarketAxess (MKTX 0.72%), which operates the largest online bond trading platform. In this segment of the MarketFoolery podcast, Andy breaks down for host Chris Hill what he sees in those stocks.
A full transcript follows the video.
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This video was recorded on Jan. 8, 2019.
Chris Hill: Aside from financials, in terms of individual stocks, what do you have your eyes on in 2019?
Andy Cross: Thanks, Chris, for that. One that I think is set up to do well on a much larger size is Alphabet, the Google parent business. When you think about all that they are in, and where they're taking that business. Obviously, search and online advertising continues to be the huge driver, but they're involved in so many other investments they're making. It's a $750 billion business. They have about $100 billion in cash. They're making all kinds of investments. Their YouTube business continues to grow. I think it's probably more profitable than what we're seeing. Online advertising will continue to evolve and grow.
Obviously, a company that size has some struggles when it comes to regulatory concerns. The online advertising market, while it's evolving, is under some pressure, as we saw with the likes of Facebook, when it comes to privacy issues and what that might mean for the online advertising business. But I just like what's going on at Alphabet, with the way that they've structured that business with Google and the other businesses and investments they're making in other businesses. And, the stock is really not that expensive. It's one that I like now.
On the financials side, piggybacking back there, a non-bank that I like is MarketAxess, which operates the largest online bond trading platform.
Hill: Wow, that sounds sexy! [laughs] Sorry!
Cross: They're basically trying to democratize and open up bond trading much like you've seen with platforms and discount brokerages on the stock side. It's much more complex, much more done old school through phones or text messages or emails when you're trying to match up buyers and sellers of corporate bonds, sovereign bonds, and lots of other fixed instrument investments. They're the market leader. They have the largest market share when it comes to online bond trading. That's a growing market. They're led by their founder and CEO, who's the largest individual share owner, Richard McVey.
It's extremely profitable. Returns on capital are exceptional. They're growing. I expect that market to continue to evolve and improve over the next few years. So MarketAxess is one stock that I like this year and beyond.
Hill: To go back to Alphabet for a second, obviously the FAANG stocks have dominated media coverage for so long. It's interesting to see, with the pullback that we saw over the last couple of months, a company like Amazon. The focus is on, "They're down from their highs." Well, they are. But over the past 12 months, it's a stock that's still up about 30%. Whereas, in the case of Alphabet, Alphabet is basically flat from a year ago.
Cross: Yeah. The stock has basically trodden water. That's one reason why it sells somewhere in the 15 to 18 times earnings, when you think about the amount of cash flow they generate and where they can put those investments into now. They have to make money on those investments over the long term. I think they will. Again, it's a very large company. It's widely owned. But I think that's a business that you can own and be comfortable with looking at the next few years, regardless of what's going to happen to the stock market in the short term.
