One stock to watch in 2024
Forecasts for the 2024 market are coming out all over the place. However, it is expected to be sluggish in the first half of the year and show signs of recovery in the second half, and interest rates are expected to fall again as the next presidential election approaches.
Most experts expect market returns to be in the single digits, around the historical average of 8 to 10 percent, give or take a few percentage points either way. If you’re looking for stocks that may be on the higher side of those projections, consider this: CME Group (NASDAQ:CME).
CME is posting record ADV so far in the fourth quarter.
CME Group is a leading derivatives exchange, its name comes from the Chicago Mercantile Exchange. It still owns the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange, and the Mercantile Exchange.
Stocks, agriculture, currencies, energy, options, futures, metals and interest rate products are all traded on CME Group’s platforms, but its largest market is interest rate derivatives. In fact, the company operates among the largest markets for interest rate and U.S. Treasury derivatives and these markets have grown.
The past two months have been record-setting for CME Group. The platform’s average daily trading volume (ADV) in November was 28.3 million contracts, up 21% year-over-year and a record high for November.
Of the 28.3 million contracts, 16.8 million were interest rate contracts, a record 42% increase over the previous year. CME set ADV records in November for 2-Year U.S. Treasury futures, 5-Year U.S. Treasury futures, Ultra 10-Year U.S. Treasury futures, and Ultra U.S. Treasury futures.
These record-breaking November figures follow a record-breaking October, when ADV hit 25.2 million contracts, up 11% year-over-year, with interest ADV accounting for nearly half of the total at 11.8 million contracts. High interest rate trading volume is associated with rising interest rates and the resulting surge in Treasury yields, which has created a lot of volatility in the bond market.
These high numbers bode well for CME’s fourth quarter. This is because the higher the trading volume on an exchange, the more revenue it can generate from clearing and trading fees.
Why CME Group is a solid bet for 2024
CME Group has had a very good year, with revenue up 9% in the first nine months of the year compared to the previous year and net income up 17% in the first three quarters. As a result, CME stock is up about 26% year to date, trading at about $212 per share.
But the fact is that CME Group has been a very durable stock for a long time. As of December 20, the stock has recorded an average annual return of 10% over the past 10 years, and has recorded an average annual return of 16.5% since its IPO in 2002.
CME Group has been generating steady, consistent profits and has tremendous margins. Low overhead costs and strong cost management resulted in an operating margin of 61% and a profit margin of 57%.
Next year should be another good year for CME Group as bonds are expected to perform well with the Federal Reserve expected to lower interest rates. With the economy likely to slow, bond investments could look quite good compared to stocks, which should lead to continued high trading volume for CME Group.
The company is also reasonably valued, trading at 25 times earnings, with a forward earnings-to-earnings ratio of 23 times. Analysts’ median price target is $233 per share, which would represent about a 10% increase from the current price. It doesn’t put out fires, but it has to beat the market, and CME has been a leading derivatives exchange and has made excellent investments over the long term. There’s a lot to like about CME Group, and now is a great time to highlight it.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
