Why I'm Buying E*Trade

E*TRADE Financial Corporation (ETFC) looks likea buy based on chart technicals. The one month by daily chart macd indicator is giving a buy signal and the three month by weekly slow stochastic chart indicator is bullish turning up from the oversold mark. Relative price strength is increasing. I believe a new up trend is starting and buying the stock at the current price of $1.46 a share offers very good upside reward over both the near and long term. I expect the stock price to trend back into the mid $2 range over next 1 to 3 months.

ETFC's cash position has grown significantly over the past few quarters and their long term and short term debt has decreased. Additionally they are showing reduced delinquency in their higher risk home equity loans.

Some Positive Notes:

ETFC rated as the #1 online broker in the 17^th annual Broker Survey (appearing in the June 2009 issue of SmartMoney magazine), which rigorously analyzed the offerings and performance of 16 online brokers based on: Mutual Funds & Investment Products, Banking Services, Trading Tools, Research, and Customer Service.

On May 4, 2009, E*TRADE announced that E*TRADE Securities LLC has introduced E*TRADE Mobile Pro for Apple's (AAPL) iPhone and iPod touch, expanding customer access to on-the-go, real-time investment, market and account information. The application provides many of the same interface, security, trading and banking features available on etrade.com to customers via their iPhone or iPod touch. The application is available at no additional cost to all E*TRADE Securities customers via the Apple App Store.

Disclosure: Starting a new position.

Comments

[China Expert:]

After watching E*trade front run my orders for quite a while I closed all my accounts and moved them. I was tired of calling their trading desk and asking them to stop "penning me". It was so obvious as to what the desk was doing. I was thrilled when I saw E*trade pay a $34 million fine for front running. So what did E*trade accomplish ? They lost tons of accounts with substantial assets in each account and paid a fine. This is one STUPID company !

Jun 03 09:19 AM

[CoverIsBetter:]

What does "penning" mean? (guess I could Google that).

I am with you Jeremy, although that profile pic looks like dentist office art. Those E*Trade babies rock! The Mobile Pro application I just got on the Free Blackberry they gave me rocks. The commissions are half what the brick and mortar houses charge.
The banking side reimburses you for ATM usage charges.
It's a great product.

Long ETFC

Jun 03 09:47 AM

[aja8888:]

The ET banking side lured me in with an interest rate 5 times that of every other institution (so they claimed). In a few short months, the rate went from 3% to 0.95%. So now my big lump of cash is earning next to nothing. Looks like I'll move it back to my Credit Union where I can get 2.5% on a short term CD (12 months). I can't get that rate at ET for a CD unless I commit to 5+ years.

I have also been inundated with e-mails wanting me to attend their seminars locally. I went through hell to get those daily e-mails stopped. This broker/bank is becoming a constant irritation.

Jun 03 01:38 PM

[sbass99:]

If the guy who wrote this article had a clue in the world he would know that Citadel owns 75% of E*Trade's massive debt. He would also know that the company is working on a massive debt for equity swap that will dilute shareholders at least 50%. This deleveraging is being done at the behest of the OTS. If E*Trade does not delever I expect there will be heavy repercussions from their regulator. This stock is highly speculative and has true value at around 50 cents. The author should do his homework before punting in penny stocks...why do E*Trade bonds trade at 50-60 cents on the dollar?

Jun 03 02:33 PM

[Stockmajor:]

Why did ETRADE choose not to use the new mark to market rules and show a profit last quarter? Why did they choose to miss their earnings estimate by one penny? They had more loan loss reserves than they needed and a small bit less would have let them meet or even exceed estimates. Had ETRADE chosen to use M2M they would have shown a $500 Million profit instead of losses (perhaps they didn't want to pay taxes on it).

The choices ETRADE made on the first quarter earnings report immediately dropped the stock value from about $2.50/share to around $1.50. ETRADE knew that missing the earnings estimate and showing a first quarter loss would cause the stock value to fall. There is much speculation as to their reasons for doing this, but no one is certain.

Are they doing a behind the scenes sweetheart deal to eventually sell out to Citadel, or to allow a debt/equity swap with Citadel at a lower stock value? I don't know, and I had been long ETRADE for the past few months. Well, I sold my shares until some clarity comes into the picture. I lost trust in the management, for now. Though, I may come back in if the picture changes a bit.

Jun 03 02:57 PM

[slvrfx29:]

The brokerage business of E-Trade is a potential acquisition target
for a larger broker-dealer (despite those reprehensible baby advertisements) but there is little interest in the banking operation.
Citadel bought E-Trade's $3 billion portfolio of mortgages,
paying less than $.27 on the dollar, and former sub-prime origination superstar CEO Mitch Caplan was tossed overboard as part of the deal. However, E-Trade retained a portfolio of HELOCs that present some serious default risk. Without a buyout, look for the ticker symbol ETFCQ by Q1 of 2010.

Jun 04 12:02 AM

[seeing beyond:]

Mortgage related losses have pretty much stopped, Etrade has a bulk of provisions available anyway, and the brokerage business churns out $200m+ profit per quarter. Let's really think about the valuation of this company, because only then can we estimate what the stock price should be or what it will be:

What would you pay for a reliable machine that pays you $2 per quarter ($8/year)? Would you pay at least $32 assuming it would keep paying out for at least 4 years and every year thereafter would be pure profit? Sure you would. Under the same logic, then Etrade's $200m year brokeragebusiness is worth $3.2b or at least $5 per share for current shareholders. Surely some monster company would buy this company for just $3.2b. Remember, this industry's international account growth has only scratched the surface. What will things be like in 5 to 10 years?

CEO Decision: Sell company now for at least $5 per share?.......or borrow more (which will dilute the current shareholders and drop the stock price to about 1/2 its current value)? Which would you do if your job was to represent ALL investors? Watch the news because I expect it to happen soon.

Investor Decision: Strong Buy

Jun 11 02:34 PM