"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 "
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 the
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 and
. Combining the idea of owning the casino with my interest in
commodities led me to what I consider the greatest casino in the
Chicago Mercantile Exchange (
While not a casino in the traditional sense, a tremendous
amount of betting and gambling goes on within its
Founded in 1898, the
has grown to become the world's largest
exchange. After a 2007
with the Chicago Board of Trade, the
CME Group (Nasdaq:
The CME now trades several types of financial instruments such
as interest rates,
, currencies and commodities. It also handles alternative
and weather derivatives. There are more options and future
contracts traded on the CME than any other exchange in the
So how is the CME Group looking as an
right now? Is it time to "own the casino?" Here's a closer
The company is building on 5-year annual
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 futures
involved in a trading scandal.
But I think these
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%. The
looks solid with a
of just above 13%. The
is currently yielding 3% with 5-year
growth of 21%.
Other than recent slowed revenue growth, I like the
fundamental numbers and technical picture.
have soared about 26% this
, recently climbing past $63. However, the stock has since fallen
back, setting up an ideal buying opportunity.
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 the
, and when it does, the CME Group will benefit. However, no one
knows the future.
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.
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