"Gamblers always die broke, young man," whispered the
grizzled, old casino lizard at the Blackjack table as I gathered
my meager winnings.
It wasn't very nice to hear: A recent college graduate, I had
just earned a small sum during my first visit to a casino. But
that advice ended up being among the wisest and most foresightful
I have ever heard.
Soon after I met the old man, I read comments from billionaire
casino owner Steve Wynn: "The only way to win in the casino is to
own one." His words still resonate with me.
I thought to myself "Money lessons come from the most
unexpected places." Here was a successful casino owner and a
hard-core gambler essentially giving the same advice -- don't
gamble and remember that the only way to win is to own the
casino. I have never had interest in casino games since.
Anytime I feel the urge to gamble in thefinancial markets or
casinos, my mind returns to the old gambler's advice. Just
picturing that man's face and thinking about how much he may have
lost during his lifetime is enough to squelch any lingering
But I have a strong attraction to commodities andderivatives .
Combining the idea of owning the casino with my interest in
commodities led me to what I consider the greatest casino in the
world: theChicago Mercantile Exchange (
While not a casino in the traditional sense, a tremendous
amount of betting and gambling goes on within its
Founded in 1898, theCME has grown to become the world's
largestfutures exchange. After a 2007merger with the Chicago
Board of Trade, the
CME Group (Nasdaq: CME)
The CME now trades several types of financial instruments such
as interest rates,equities , currencies and commodities. It also
handles alternativeinvestments such asreal estate and weather
derivatives. There are more options and future contracts traded
on the CME than any other exchange in the world.
So how is the CME Group looking as aninvestment right now? Is
it time to "own the casino?" Here's a closer look...
The company is building on 5-year annualrevenue growth of
10.7%. However, revenue dropped in 2012 by more than 11% to $2.9
billion. This is due to the competition formed from the
Intercontinental/New York Stock Exchange merger and the 2011
collapse of MF Global Holdings, a futuresbroker involved in a
But I think theseissues will soon work out as traders slowly
feel more secure. The gross margins of the CME Group are a
mind-blowing 97% and net margins are respectable at nearly 31%.
Thebalance sheet looks solid with adebt-to-equity ratio of just
above 13%. Thestock is currently yielding 3% with 5-yeardividend
growth of 21%.
Other than recent slowed revenue growth, I like the
fundamental numbers and technical picture.Shares have soared
about 26% this year, recently climbing past $63. However, the
stock has since fallen back, setting up an ideal buying
Risks to Consider:
Greater competition and the fallout from the MF Global
scandal have hurt the CME Group. But I think revenue will soon
return to normal growth. There is a tremendous amount of money on
the sidelines waiting to get back into themarket , and when it
does, the CME Group will benefit. However, no one knows the
Action to Take -->
The CME Group is an ideal opportunity "to own the casino." This
casino actually serves a real economic purpose for farmers and
other producers who use it to manage market risks. I like the
stock as a "buy" right now with a stop-loss at $59 and an
18-month target price of $70.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.