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

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

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!