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The smartest way to play the bull market?

Because the Reserve Bank of Australia has cut the cash rate to 2.75% — and could cut it again — interest in share-market investing seems only likely to rise in the coming months.

A smart way to play this coming (or simply persistent!) bull market could be investing in shares of companies whose business models turn in part on share-market volumes.

Certainly Computershare (ASX: CPU) and ASX Limited (ASX: ASX) stand to benefit, as does one lesser known company but still promising company.

A look at Iress Limited

Iress Limited (ASX: IRE) develops and sells equity-market software — programs providing market data and also trading and portfolio management — for customers across the world, including in the UK, Asia and Canada.

Australia and New Zealand are the company’s primary markets today, however, with Iress in recent years commanding some 90% of market share. (Interestingly, ASX Limited actually owns roughly 20% of Iress.)

Certainly Iress’ growth over the last several years has been encouraging. In 2007, revenue came in at $135.4 million and grew to $207.5 million by 2012. Net income grew from $25.5 million to $39.2 million over the same period.

Going forward, the company’s growth should increasingly come from its overseas operations and the company’s wealth management segment in Australia and New Zealand, which saw revenue growth of nearly 10% and profit growth of 15% in 2012.

Foolish takeaway

Iress shares don’t look cheap today, trading at 28 times earnings, or five times sales. But with the short-term investing trend on its side, a high-margin business, a market cap just over $1 billion, plus $56 million in cash and no debt, this company could still be a good bet. Iress also pays a dividend, franked at 90% in 2012, with a yield currently in the 4.5% range.

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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

 

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