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

One potential silver lining for these companies, albeit several years in the future, is the potential for serious earnings growth when interest rates finally begin to rise again. Schwab, for example, gets 35% of its income from interest, and the historically low rates aren’t helping. The Fed has said that it intends to keep rates at record lows for the next few years, so this could produce double-digit growth for brokerages once interest rates go on an upswing at some point beyond 2015.

The bottom line is that if you don’t have money to speculate with, stay away from brokerages. The stable, solid candidates are simply too expensive to warrant a long-term investment and there are better opportunities elsewhere in the financial sector.

However, if you have room in your discretionary portfolio, E TRADE Financial Corporation (NASDAQ:ETFC) may be worth a look. When the dust finally settles from their lending mess, the market will realize that E-Trade has built truly the best brokerage platform and the clientele that goes with it. While the long-term viability is far from certain, I think E-Trade has a favorable risk-reward ratio that could pay off handsomely for those willing to take a chance on it.

The article This Brokerage Is Cheap But Risky originally appeared on Fool.com and is written by Matthew Frankel.

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