If the economics of all exchanges are based on volume, then CME’s in the sweet spot right now. According to Cramer, now that CME has merged with the Chicago Board of Trade, about 80% of all futures contracts flow through the combined exchanged. It handles almost every major asset class: treasuries, Eurodollars, foreign exchange, equities, grains and livestock.
That volume is pushed even higher in volatile markets like the one we’re seeing now. And that means bigger profits for CME.
On the quarterly call, CME’s management said the exchange has reached its second-highest quarterly average daily volume ever, while CBOT reached its highest quarterly volume ever. Management also said that subprime worries actually lead to higher volumes in treasuries and Eurodollars as people flee to safer bonds. Again, higher volume equals higher profits.
Don’t let the share price fool you either – this is not an expensive stock. CME is expected to grow 20% this year and 30% next year. A 30 multiple on that kind of growth is cheap by Cramer’s definition. Even if Home Gamers can only afford one stock, he recommends buying CME.
The last thing to keep in mind regarding the Chicago Merc is the exchange’s accelerating revenue growth. Even using the lowest estimates, CME is expected to grow revenues at a 36.9% clip next year. That’s up from 35.3% this year and 24.3% in 2006. Cramer expects these numbers to go higher.
“Stocks with ARG always deserve a premium multiple,” Cramer said. “CME is, if anything, getting a discount multiple.”
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