Mad Money

Trading on NYSE


At the beginning of January, Cramer named three stocks of the year – a value stock, a growth stock and a speculative stock – and runners up for each category. While the action in the silver and bronze categories has been generally positive, the top three have been pretty tame.

The value stock, Altria, is down 1.6%. Level Three Communications, Cramer’s speculative pick, is up a measly 3.9%. The growth stock, New York Stock Exchange, hasn't taken flight. But this doesn’t mean Cramer has changed his mind. He says he’s still backing up the truck on all of them – especially NYX. Here’s why:

Stocks of the Year

New York Stock Exchange has taken a heavy hit from arbitrage pressure – that’s authentic Wall Street gibberish meaning that people have been buying shares of Euronext and selling shares of NYX at the same time to make a tiny little profit on the merger deal. The deal itself is terrific, Cramer says, but the arbitrage pressure it created was like a pair of cement shoes on NYX’s feet. But all that ended today. Now, more than 91% of Euronext shareholders have tendered on the NYX deal, so the merger can finally close next week.

Cramer believes that you have to buy NYX now before we start to see a massive short squeeze – because all the insiders who were supposed to sell didn’t and NYSE could be among the largest names not in the S&P that will end up being admitted to the index without a lot of supply. Plus, there’s the fact that NYX could end up being the ultimate Warren Buffett stock.

Stocks of the Year Pt. 2

At $93 and change, Cramer sees NYX jumping back at least to its 52-week high of $110 plus, as so many of the neutral and negative analysts are forced to raise numbers and change their ratings to “buy.”

What a lot of people aren’t realizing with this company is the value of its derivatives business, Cramer says. This is actually more important than NYSE’s supposed market share in listings because derivatives are the exchange’s biggest source of revenues. That’s not to say NYX won’t have a great listings business. Who doesn’t want to list there? And the addition of Euronext will give it a huge leg up on European equities and an exceptional financial futures business, with the possibility of a U.S. clearing business. People seem to forget that Euronext owns the London Financial Futures Exchange, which is the world’s third-largest derivatives exchange, with a margin nearing 50% on earnings before income taxes and growing at a 20% clip.

On top of all this, fees are going higher while costs are going lower – the perfect combo. Trading fees are 30% below the Nasdaq’s and 90% below international peers, even though the NYSE is a more prestigious place to list. This is the world’s biggest exchange group with $3 billion in revenues when you include Euronext, which is growing like a weed. Think of it as a Euronext story with an NYSE tail, 60% of the pre-synergy earnings before interest and taxes from the combined company will come from Euronext – it’s the bigger deal. 

Bottom Line: After three months of running in place as one of Cramer’s stocks of the year, NYX is about to close on the Euronext acquisition – and then this stock should run. Cramer reiterates his buy to the ninth power: It’s time for you to back up the truck on the NYSE if you haven’t already.

Questions? Comments?