Should I Buy CME Group (CME)? Finance YouTuber Analysis

The speaker likes exchanges like CME, believing they are cheap after a sell-off. They suggest the sell-off was an overreaction to news about perpetual listings, implying the threat is not as significant as perceived.

“I like the exchanges. I think they're cheap. I think they sold off. I'm not even kidding. On the Koshi perpetual listing Yeah. news and fine, it may be they're a threat, but are they that big of a threat to suddenly start crashing?”

CME Group, a global leader in derivatives trading, could see surprise upside in earnings. Trading revenue at major banks surged due to market volatility, and futures are a key hedging tool. While 10% revenue growth is priced in, higher growth and an upgraded full-year forecast are possible.

“And while the upside is partially priced in here with revenue expected up 10% for the CME, there's a good chance that we see higher growth and an upgrade to the fullear forecast.”

CME Group is recommended as a beneficiary of market volatility, as investors rush to hedge risks with derivatives and futures. This increases trading fees and commissions for the exchange, leading to higher revenue.

“Investors rush to the CME futures products to hedge that volatility in assets from oil to currencies and stocks. That means higher revenue as the exchange collects those trading fees and the commissions on those investments.”

The YouTuber suggests CME Group, which operates the Chicago Mercantile Exchange, as another beneficiary of market volatility. Investors rush to CME's futures products to hedge during uncertain times, leading to increased trading volume and fee revenue. Despite being down for the year, shares have risen since volatility increased, and it remains relatively cheap on a P/E basis compared to CBOE and NASDAQ.

“investors rush to the CME Futures products to hedge volatility in assets from oil to currency and stocks”

The YouTuber argues that CME Group benefits from higher interest rates due to increased volume in interest rate futures trading. Volatility and fear around rates drive more investors to use derivative products for hedging and investment, leading to higher trading volume and revenues for CME.

“CME Group tier CME runs that Chicago mertile Exchange it's also seeing the upside from those higher rates through increased volume of interest rate Futures Trading.”

The YouTuber recommends CME Group as a 'picks and shovels' play in financials, highlighting its position as the world's largest derivatives marketplace. He notes its strong revenue growth, high operating margins, and attractive valuation at 2.2 times price-to-book, which is a significant discount to the industry average and its historical multiple. Analysts have a target price of $200, suggesting 18% upside.

“The shares trade for just 2.2 times on a Price to Book value a 43 discount to the industry average and well under the 2.6 times average multiple over the last five years.”