E TRADE Financial Corporation (ETFC) Is Cheap But Risky – Charles Schwab Corp (SCHW), TD Ameritrade Holding Corp. (AMTD)

Page 1 of 2

When it comes to online brokers, the top six firms hold nearly $4 trillion in client accounts. Of those that are publicly traded, there is one that has severely underperformed the others due to its poor banking practices. I’m talking about E TRADE Financial Corporation (NASDAQ:ETFC), which was named Kiplinger’s best online brokerage of 2012. With the constant praise that the brokerage division receives, is this one worth a look at the current depressed levels, or is it a lost cause at this point?

TD Ameritrade Holding Corp (NYSE:AMTD)As mentioned before, E-Trade has significantly underperformed its peers. A $10,000 investment in the company 5 years ago would be worth just $3,021 today. Compare that to $13,185 for TD Ameritrade Holding Corp. (NYSE:AMTD). Even Charles Schwab Corp (NYSE:SCHW), which has significant banking exposure, has gotten back to even, and the same investment 5 years ago would be worth $10,004 today.

With the mortgage crisis getting close to being in the rear-view mirror, why is E TRADE Financial Corporation (NASDAQ:ETFC) still trading for such a low price? After reaching a (split-adjusted) high of $277.60 in 2006, the stock started falling when the mortgage bubble burst, settling at a low of $5.90. It has since rebounded to the $11-range, a ways off from its glory days. The company has been trying to turn around, but has managed to post positive earnings for only one year since 2006.

Following the mortgage crisis, E TRADE Financial Corporation (NASDAQ:ETFC) received a cash infusion of $2.5 billion from Citadel Investment Group, which got E-Trade’s $3 billion asset-backed securities portfolio off of their books, and got the company some much-needed liquidity.

Since the crisis, E-Trade has focused its resources on becoming the best online brokerage, and has succeeded for the most part because of its feature-packed software and highly successful ad campaigns (the E-Trade baby is one of the most recognizable advertisement characters in the entire marketplace).

As I have said in several other articles, uncertainty can create great opportunities. Right now the market is uncertain of E TRADE Financial Corporation (NASDAQ:ETFC)’s ability to turn itself around and become consistently profitable. As mentioned, the company lost money last year, but is expected to earn 54 cents per share this year, which is expected to grow to 66 cents and 77 cents in 2014 and 2015, respectively. So, E-Trade is priced at 21 times forward earnings with a 3-year average growth rate of 19.5%.

Now, I am not at all advocating an investment in E-Trade of money that you cannot afford to lose. For a retirement portfolio, for example, the best move may be one of E-Trade’s competitors. I am bullish on this sector in general, because as the economy continues to recover, more money will be invested, more stock will be traded, and more commissions will be earned.

TD Ameritrade Holding Corp. (NYSE:AMTD) is a much more stable, solid company, and trades for 19.8 times TTM earnings. The consensus calls for forward growth of about 8% which sounds a bit pricey. The company’s earnings have actually been pretty flat in recent years, and I would need for that to change drastically before I consider paying such a premium for the stock.

Schwab looks even worse, trading for 25.6 times earnings with just 7% forward growth projected. While Schwab has arguably the most loyal and affluent client base of any of the online brokers, I simply don’t see the reason for such an inflated valuation.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!