CME Group Inc. (CME): A Bull Case Theory

We came across a bullish thesis on CME Group Inc. (CME) on Substack by Magnus Ofstad. In this article, we will summarize the bulls’ thesis on CME. CME Group Inc. (CME)’s share was trading at $236.95 as of Jan 27^th. CME’s trailing and forward P/E were 24.68 and 22.57 respectively according to Yahoo Finance.

CME Group stands out among its peers as a market leader in derivatives trading, rooted in its origins in Midwestern commodity markets. Today, CME offers derivative products across interest rates, equities, currencies, and commodities, making it a pivotal player in global financial markets. Its transactional revenue model is uniquely tied to trading volumes, with strength in one asset class often offsetting weakness in another. The recent normalization of interest rates has been a significant tailwind for CME, as interest rate futures constitute a core component of its business. In 2024, CME achieved record-breaking daily trading volumes in interest rate contracts, highlighting its resilience and adaptability to market trends.

Unlike competitors diversifying into recurring revenue streams, CME remains more exposed to market forces, relying heavily on transaction-based income. However, this focus has its advantages, as evidenced by CME’s higher dividend yield compared to its peers. This dividend provides steady income for investors, particularly during market downturns, and is well-covered by the company’s strong cash flow. While other exchanges pivot towards monetizing data and compliance services, CME’s traditional approach to trading derivatives continues to thrive, driven by macroeconomic trends and investor demand for efficient risk management tools.

CME Group Inc. (CME) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 63 hedge fund portfolios held CME at the end of the third quarter which was 59 in the previous quarter. While we acknowledge the risk and potential of CME as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CME but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.