There’s a simple and attractive case for Nasdaq (NASDAQ:NDAQ) at the moment. The legacy exchange business supports what is still a reasonable valuation for Nasdaq stock. Meanwhile, blockchain and cryptocurrency initiatives support further longer-term upside.
Admittedly, to some investors, blockchain and even cryptocurrency might seem to be a bit of a disappointment. Blockchain adoption has been slower than hoped. Bitcoin trades at less than half past peaks. Some altcoins have completely crashed.
But from a long-term perspective, both trends remain intact. Blockchain growth will continue. Meanwhile, cryptocurrencies aren’t fantasy money. Rather, they are the software of the future.
Indeed, other major trends saw volatility in the beginning. The ‘dot-com bubble’ in the late 1990’s burst — but stocks like Amazon.com (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) still made fortunes for early investors. More recently, cannabis stocks have struggled, but the long-term potential in that industry can’t be denied.
Major trends take time. For blockchain and cryptocurrency, it’s a matter of when, not if. And what makes Nasdaq stock attractive is that the exchange business means investors don’t have to worry too much about the when.
Nasdaq Stock Is Cheap Already
As I write this, NDAQ stock trades at an even 21x next year’s consensus earnings per share estimate of $5.69. That’s a multiple I’d be happy to pay just for the exchange business.
After all, this is a truly wonderful business. Savvy long-term investors look for a competitive moat — and Nasdaq clearly has a deep one. Obviously, the New York Stock Exchange, owned by Intercontinental Exchange (NYSE:ICE), is a key rival. But the business is a duopoly, with no real third competitor.
And Nasdaq is heaviest in tech, which is where this market’s growth is and should be going forward. The NYSE has won a few major initial public offerings in the sector, with Uber (NYSE:UBER) likely the best example. But high-tech, high-growth companies continue to choose Nasdaq.
In fact, Nasdaq is leading the NYSE so far in 2020 in terms of capital raised.
Growth has been impressive in recent years, and that should continue. Almost one-third of revenue comes from what the company calls “information services,” including market data. Trading volumes, which had dipped before the coronavirus pandemic, account for only 36% of sales.
This is a business that simply should keep growing for years, if not decades, to come. Economic cycles can have a modest impact by reducing the number of IPOs, but overall Nasdaq’s business will remain resilient.
21x earnings for a defensive, growing business in this market is a more than reasonable multiple. Just looking at what Nasdaq stock is right now, the price seems right.
Blockchain and Crypto
Yet Nasdaq has two potential growth drivers in blockchain and cryptocurrency.
On the blockchain front, Nasdaq has been a leader for some time. It first moved into the space back in 2015, using blockchain for its private securities platform. In 2017, it partnered with Citgroup (NYSE:C) to apply blockchain technology to cross-border payments.
Over time, Nasdaq can use blockchain to settle equity and derivatives trades faster. Applications elsewhere are endless. We’ve seen, on occasion, optimism toward similar plans from Overstock (NASDAQ:OSTK) through its tZero subsidiary. Nasdaq, as an established leader in the industry, has a much better chance of success.
As the regulatory environment surrounding cryptocurrency becomes more clear, Nasdaq can be a leader in that growing field as well. The company already provides market monitoring technology to several exchanges. It has said in the past it’s open to becoming a crypto exchange itself.
How, exactly, Nasdaq’s role in blockchain and crypto plays out admittedly remains unclear. But the company is making progress in both markets. It’s an unquestioned leader in its industry. Its technical knowledge is unsurpassed.
If those trends flower — and I strongly believe they will — Nasdaq is going to benefit.
Look for a Breakout
So we have a business that, on its own, has an attractive valuation. And we have two potentially significant catalysts to growth over the long haul.
That’s an excellent bull case. In recent months, it hasn’t quite been enough to bust NDAQ stock through resistance at $120.
Then again, this isn’t necessarily a short-term trade. It’s a long-term investment. As tough as that resistance has been, if and when Nasdaq stock breaks through, it could well have a breakout ahead. Businesses like this simply aren’t available for long at this kind of valuation. Again, it’s not a matter of if, but when.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.