A lot of new investors have come into the market in the past few years, in large part because of the ease of investing through no-fee online brokerages like Robinhood. And many of the most popular stocks on Robinhood, for example, are those with shares under $10. Some traders are looking to swing these stocks and sell for a profit, while others are looking for multibaggers that will generate great long-term returns.

Investing in low-priced stocks is typically more risky, as they are usually unproven companies with little in the way of earnings but perhaps enough potential to be interesting. Or they could be more established companies that have fallen on hard times and had their stock price sink. Finding the ones that are most likely to break out is not easy, but they typically have some sort of edge or catalyst that propels them.

Here is a stock for under $10 that just might have what it takes to blossom: BGC Partners (BGCP).

A man holding out a $10 bill.

Image source: Getty Images.

A niche operator

BGC Partners is a brokerage and financial technology firm. Its primary business is the brokerage, where it operates in a very specific niche as one of just three inter-dealer or wholesale financial brokers. Inter-dealer brokers are intermediaries that facilitate transactions between investment banks, broker-dealers, and other large financial institutions. BGC Partners, TP-ICAP, and Compagnie Financière Tradition are the three largest players, controlling the vast majority of the market. Being one of the market leaders in a small field of major competitors is a great advantage.

The company also offers a variety of other services including trade execution, clearing, processing, information, and other back-office services. Its electronic trading platform, Fenics, has been a catalyst for growth, generating $97 million in revenue in the second quarter, up 23% year over year. 

At the end of 2015, Fenics generated $224 million in annual net revenue. At the end of 2020, net revenue from Fenics was $316 million, and it is on pace to come close to $400 million this year.

The Fenics GO (Global Options) platform was named OTC Trading Platform of the Year by Risk magazine, the leading publication in the industry. And the Fenics UST platform, its trading platform for U.S. Treasury bonds, has been rapidly gaining market share. It is the second-largest  platform of its kind for U.S. Treasuries behind CME Group. It increased its market share from about 2% at the end of 2017 to 16% at the end of 2020.

BGC has a solid cash position, with about $500 million in cash and cash equivalents and about $430 million in operating cash flow. This does not include the proceeds from the sale of its insurance brokerage for $500 million to Ardonagh Group. Much of that cash from the sale will be invested in the Fenics platform, which CEO Howard Lutnick sees it as the company's future growth driver. Lutnick explained why:

The sale proceeds will provide additional capital to accelerate Fenics growth, which increased 40 percent year-over-year in the first quarter of 2021. Additionally, our Fenics Growth Platforms, which include Fenics UST, Fenics GO, Lucera, Fenics FX, and other newer stand-alone platforms, grew more than 82 percent over the same period. While the growth of our Insurance Brokerage business was industry-leading, we believe the scale and scope of the Fenics opportunity is far greater, with potential to drive shareholder value materially higher.

A future former bargain stock? 

BGC Partners was trading around $5.25 per share at recent prices, up more than 30% year to date. The stock hasn't offered investors much up till now, returning only 35% over the past 10 years despite peaking over $10 per share in 2017. But industry consolidation over the past five years has allowed it to gain scale and market share as an inter-dealer broker. TP ICAP, the largest inter-dealer broker, acquired a major competitor, ICAP, to become TP ICAP in 2015, while BGC bought a major player, GFI Group, in 2016. They are now the two dominant players.

With the rapid emergence of the Fenics trading platform, BGC Partners seems poised for more consistent growth in the years ahead. The consensus among analysts is a $7 price target over the next 12 months, which would be about a 33% increase over its current price. BGC Partners has a solid cash position,

unique advantages, and a growth catalyst that should allow it to shed that bargain-stock label.