Comparative Price Shopping: Selected Banking, Mortgage and Brokerage Stocks 30 comments
-
Font Size:
-
Print
- TweetThis
The variety of comments on my Friday, April 18 article (see “E*Trade: Primed To Turn Around?”) have prompted me to provide additional stock price analysis and share trading volume analysis.
Stock Price Analysis
The chart below shows a selection of well-known banking, mortgage, and brokerage stocks. Predictably, Bear Stearns (BSC) has experienced the worst price decline (-91%) since October 2007. With subprime mortgage exposure, one would think that the major mortgage companies like Countrywide Financial (CFC) and Washington Mutual (WM) would be next in line under Bear Stearns.
That is how it should be, except at this point in time E*Trade Financial (ETFC) is in that second row position. E*Trade is still suffering from the impact of negative analyst comments. The worst impact being when Citigroup Analyst Prashat Bhatia irresponsibly used phrases like “Bankruptcy risk cannot be ruled out” and “If customers rush to withdraw their money” in his November 12, 2007 downgrade of E*Trade’s stock price to $7.50. Within days, E*Trade customers had “rushed and withdrawn their money” as $30 billion of client deposits were removed and deposited at brokerages like Charles Schwab (SCHW) and TD Ameritrade (AMTD).
What row should E*Trade be on? What is a fair E*Trade stock price in the lineup of Banking, Mortgage, and Brokerage Companies? E*Trade’s primary business is brokerage of global online trading. E*Trade’s mortgage involvement is much less in magnitude than Countrywide and Washington Mutual. Also, my understanding is that the loan portfolio at E*Trade has average FICO scores above 700. Countrywide and Washington Mutual would not have that same caliber of borrower FICO scores in their portfolios. Therefore, a market price above Countrywide’s (CFC) $5.68 is justifiable. A market price above Washington Mutual’s (WM) $11.98 does not seem unreasonable, especially if you look into the future earnings projections for Washington Mutual and see that future quarterly EPS is red … red … red … and more red! A market price above Bear Stearns (BSC) $10.56 is also reasonable since E*Trade has a valuable customer base and trading platform.
One thing is certain: E*Trade’s $4 price is not justifiable nor reasonable. Also, a word of caution to Ameritrade and Schwab investors. Those brokerages will quite likely suffer earnings setbacks in future quarters as E*Trade regains a portion of it’s customers back. The offset of ETFC’s upside potential is definitely a downside to AMTD and SCHW.
Trading Volume Analysis
What happened with trading volume on Friday, April 18? Bear Stearn’s volume was flat and Washington Mutual’s volume was down 11% from the 10-day average. Countrywide’s volume was up 25%. E*Trade’s volume was up 142% with 58 million shares traded when the 10-day average was 24 million shares per day (initial Friday startup volume accounted for only 5 million shares). Double “trading volume” with an opening price Friday of $4.05 and Closing Price of $3.97. A lot of shares changed hands. Who sold? Who bought? Institutions? Small investors? Large investors?
My feeling is that small investors sold out, especially in the middle of the day when the price “finally” went back above $4; after all, the company missed the “Analyst’s” earnings projections and Prashat Bhatia was again making irrational negative predictions and inaccurate comments--and Marketwatch was putting them in print. With that level of share volume and such a small daily fluctuation in share price, you can bet the buyers were not small guys.
As Friday trading went on, the institutions and large investors just kept accumulating quantities at a price they know will soon be very historical. For example, some comments regarding last November indicate that Citigroup increased their position in E*Trade stock over 600% in the 4th Quarter of 2007; “even though” their own analyst had downgraded the stock with the word “bankruptcy” attached; others feel that Citigroup increased their position “because” their own analyst downgraded it with the word “bankruptcy” attached.
Summary
The bottom line is that E*Trade’s April 17, 2008 conference call presented factual data documenting survival, recovery, and a positive future. They do have a mortgage portfolio to manage through the current economic recession and the current subprime crisis; but it is being wisely managed. E*Trade did not have to announce a layoff program. The management that caused E*Trade’s problems in 2007 is gone, and new management is executing a successful “turn around” plan. Most importantly, the “bankruptcy” word no longer applies to E*Trade; Citadel infused $2.5 billion of cash and is a 20% common stock shareholder. I reiterate bankruptcy will not happen.
I have always loved a good story. E*Trade’s stock will become the “Cinderella ‘Stock’ Story” for 2008. From the “Ashes” that remained after Bhatia’s November comments caused a destructive inferno to a position of high respect and honor in the “Grand Ballroom of Brokerage Firms” as one of the top “electronic global trading platforms” in the world. Time will tell . . . may we all live “happily ever after.”
Disclosure: I hold a long position in ETFC.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
TraderMark
-
2
Don Dion
-
3
Cliff Wachtel
-
4
Mike Havrilla
-
5
James Quinn
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 30 comments:
Do as I say, not as I do. Retail investors get screwed yet again. Kudos for pointing this out Ms. Reed, kudos.
Someone tell me how an analyst can on one hand scream sell, sell, sell to the public while he's in the loop at City which bought, bought, bought during the same period. I thought the regulators frowned on this double speak. If on the other hand this guy wasn't in the loop on City's own security purchasing, what does that say about this guy's creditability? I smell a rat.
PRETTY GOOD POINT.
Accordingly I don't take anything he says seriously. This guy/gal could give the Grim Reaper and run for is money on being constantly negative about everything in every thread he shows up.
www.fastfancydress.co....
That's piss poor research to make a bull case for the stock.
Wishing won't make it so.
User 181148 has it right, if the stock had value it'd be up by now.
By the way ... your contrary perspective is appreciated and is important to help us think through things.
Sincerely Signed.
Please engage left side of brain.
User 181270 claims that E*Trade will experience "projected losses of 1-1.5B in the next 2-3 years". That statement is simply untrue.
The management's "projected loss" was documented in the Q4 earnings release for 2007, and you can see it for yourself here: files.shareholder.com/...
If you look closely, you will find that management did project $1-$1.5 billion in potential loss, but that number is cumulative and includes the $460 million loss for 2007.
Notice page 12, where the cumulative loss is broke out by years and identified with higher and lower amounts. After last year's hit, you will see that management is really predicting the potential for another $.7 to $1 billion for the TWO years of 2008 and 2009.
What people like User 181270 do is their subtle manipulation of the facts, turning $.7-$1 billion into $1.5 billion, and turning the next 2 years into the next 3 years. And by doing that, they catch a lot of people who don't take the time to do the research and find out (s)he is deceiving them.
On thing is for certain that I agree with User 181270. The price has indeed been hovering in the $3-$4 range now for some time. But its not because that is a fair market value for ETFC. The main reason that it has been held so low is because of people like User 181270 who can be so effective at distributing deceptions such as this one about the future losses.
seekingalpha.com/artic...
Anyway, nice wrap-up here, Cindy. We need to see this stuff in print to make sure it sets in with the thick-headed crowd! To those of you saying ETFC would be trading higher "if it was worth it" -- did you just start investing yesterday?? Hahaha. Stocks don't "immediately" bounce to the price they're worth, otherwise there would never be a such thing as getting a bargain!! Values like this are found in stocks where the "sheep" are still following the shepherd's trail long after the shepherd has left them!! If you're not on the bleeding edge of recognizing a turn-around, you'll likely miss the opportunity, or the MEAT of it.
ETFC's problems are cleaning up. They're not done with, and until the general market begins to turn around, we may end up being a puppet of hedge funds. I have a feeling, though, that ETFC will hit positive earnings and start turning around a good 1 or 2 quarters before the others. That assumption is based upon their progress to date with selling off non-core assets, reducing overhead expenses (such as those pesky jets!), and the positive news we got this part Q about slowing delinquincies (40%+ reduction!). While ETFC's BOD mentioned that it's too soon to consider it a trend, it's a dramatic decrease that may be tied to the heavy federal lending rate cuts we saw earlier this year. I'm expecting they post a profit in Q2 or Q3 at the latest, with Q2 being a stretch goal but not completely unreasonable.
Their brokerage is in tip-top shape and getting better every day. Moglia was seen on CNBC arguably defending ETFC's platform against targeted attacks/questions. Why would he do that? Hmm... hopes of a buy-out in the future? You do need to watch what you say if that's your intention! He mentioned that the defections are over now, as well. Don't forget Newton's 3rd law! We should see some of those rebounding now, and I'm sure AMTD knows it. I'm sure Moglia was priming the analysts not to expect the attrition to continue in AMTD's favor.
There's been so much arguing on this topic, though. I'm almost exhausted speaking about it... and for what? To convince other people to get in while the "gettin' is good"? Do your homework, place your bets. This is a 6 - 24 month investment (depending on how much you want to hold out for).
You can lead a horse to water...
E-trade is no longer in the morgage business as of now.