NYSE Euronext (NYX): How To Make Money Like A Hedge Fund

CME Group pays a robust dividend with a yield of 3.4%, which is a payout of only 20% of its earnings. The diversity of CME’s operations and its current P/E of 12x – the lowest of the five exchange companies – impress us. Also boding well for CME is its 5-year average operating margin of 63% – the highest of the players mentioned here. George Soros increased his stake in CME by 400% last quarter (see George Soros’ newest picks).

Last but certainly not least, CBOE Holdings pays one of the smaller dividends – yielding 2% – and it also represents a 30% payout. We believe this exchange company trades at the upper end of the range – 18x earnings – for no good reason, where earnings growth is expected to come in at only 10% annually over the next few years. The overall hedge fund interest in CBOE was weak last quarter, but the exchange did see billionaire Jim Simons upping his stake by 30% (check out Jim Simons’ portfolio).

In short, we believe that the NYSE-Intercontinental combination will be a double threat; the new company will be able to leverage the NYSE’s long-standing brand name and cash generating capabilities, where it currently pays a 5% dividend yield, and Intercontiental’s industry-leading expected EPS growth of 13%. For investors unwilling to make the merger-arbitrage commitment, an investment in the combined exchange companies should yield better than expected results over the long-term.

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