Be Cautious With Chicago Mercantile Exchange Holdings

After making a spectacular upside run from $42 to $500 in just over three years, Chicago Mercantile Exchange Holdings (CME), a futures exchange, has paused. Its price chart shows a double top following by a choppy downside.

CME makes money from offering trade futures contracts and options on futures contracts on interest rates, derivatives, equities, commodities and more. Its 10-fold stock price increase has been due, in large part, to hefty demand for these and other financial products offerings.

Investors should use caution with this pricey stock. Its price to earnings ratio (P/E) of 45 is very high for a business services company and could quickly come back to earth.

Posted September 15, 2006.