E*TRADE Financial: It Was Good to Be Long

Friday was a wonderful day to be almost irresponsibly long AIG, E*TRADE Financial Corp. (ETFC), and energy.

I've never listed my full portfolio here and I don't plan to, but here are some things that I have been doing lately:

I sold more of my once-huge Buffalo Wild Wings Inc. (BWLD) position on Friday, as the stock notched a new 52-week high. I still hold some BWLD, but the stock is definitely fairly valued here, so there are better opportunities for this money elsewhere.

I sold Conoco Phillips (COP) $75 calls Friday morning that I had purchased during the oil panic of last week. I bought the contracts for $0.40 and sold for $1.70 - having a nice win after losing on my Take-Two (TTWO) position definitely helped.

Speaking of TTWO, I bought equity earlier this week at $15.50, but my big options position expired worthless on Friday afternoon. Long-term prospects are great and share valuation is ridiculously low, but I don't expect a near-term catalyst (or at least I'm not willing to bet on one via options after getting burned).

I progressively backed up the truck with AIG this week, buying different lots at different times. My first purchase was at $7.50 - ouch. But thanks to averaging down, my average cost is now $3.25/share. In addition to the temporary end of short selling and general euphoria, shares are rallying today as some investors are attempting to block the government's dilution of the company. I see it as a win-win; even if the company is diluted and liquidates, the sum of parts is much greater than the current valuation (I have seen $10 cited as a reasonable estimate). If the government agrees to less or no dilution (considering that the 11% interest on the $80 billion loan should provide them with some nice income anyway), shares will obviously be worth even more.

I added to my CIT Group Inc. (CIT) position today (increased it by 75%, it's still a small portion of my portfolio) when the stock was down earlier in the day. Wells Fargo (WFC) provided CIT with a $500 million line of credit yesterday; I see that as a sign of confidence and relatively-clean books.  Also, CIT has asked to be added to the list of companies that can't be shorted (I don't understand why it was left off in the first place). If the company's request is granted, the near-term floor should be right here at ten.

I added to my ETFC position earlier this week; my average cost is now just above $3. Like CIT, ETFC has done a better-than-average job of selling assets to create a capital cushion, and their retail business is thriving. Continued writedowns on mortgage-based assets they still hold may be a short-term issue, but I see no bankruptcy risk anymore, which the market still seems to imply.

Other energy: At the end of last week, I held COP, Marathon Oil (MRO), and CNOOC Ltd. (CEO) shares. I sold the COP earlier this week to avoid a margin call, but still hold MRO and CEO, with costs of about $40 and $118. $100 oil seems to be the sweet spot for integrated companies (MRO), and CEO (CNOOC, a Chinese oil company) doesn't have to deal with as many government controls as PetroChina (PTR) does. It also pays a nice 5% dividend.

I have a few other positions, but that covers my major actions of the past two weeks. With all of the aforementioned purchases, I have a fairly long-term timeframe; with a predator-free trading environment for the next few weeks and ample government-provided liquidity, financials may finally get their act together.

Disclosure: The author owns BWLD, AIG, ETFC, CIT, MRO and CEO

Comments

[dan clue:]

I am also long on Etrade (ETFC) its a company I continue to believe in and like you said they have done a fantastic job selling some non core assets to give them almost and additional billion dollar cash cushion and the cash will come in handy as their bad assets that they have on their books is short term. When they unload this I expect the stock to hit the $10 plus. The mortgage assets along with the shorts have continued to hold their stock down. At the end on friday at 3:59 someone bought 4 million shares of etrade stock. I do believe that when etrade gets rid of their mortgage assets off their books someone will attempt to acquire them or do a merger. Either way I'm long Etrade. I would like to hear from CEO Layton, I like him to give us an update on the sale of etrade of canada. Its supposed to be completed in the 3rd quarter and I would also like him to discuss the addition this weekend of etrade in the middle east they were just issued a license. I like hime to issue a press release weekly talking about the business. He needs to be on the offensive.

2008 Sep 21 07:26 PM

[jode:]

Where can you find out that someone purchased 4 million shares of ETFC at 3:59pm?

2008 Sep 21 09:56 PM

[dan clue:]

I looked at the one day chart graph and the time it was purchased. And if you were watching the stock price the last five minutes you could see how rapidly it spiked. It must have been a market order and not a limit. The price went up 10 cents in the closing minute. You can find it on market watch. Market watch shows a 2 1/2 million shares but etrade chart (at etrade) shows almost 4 million shares.

2008 Sep 21 11:00 PM

[Billy Staples:]

RegARDING eTRADE. ALL I can RECALL ABOUT e-TRADE WAS WHEN IT FIRST HIT SKID ROW, SOMEONE CALLED IN TO cRAMER AND ASKED HIM ABOUT IT AND HE COMPARATIVELY BLEW THE GUY OFF. SAYING SOMETHING LIKE, DON'T EVEN BOTHER TALKING ABOUT e-TRADE, THEIR OVER, FINISHED, END OF STORY. (Caps Sorry)

I like Cramer very much, but that particular call just stuck with me as almost being condescending to this guy. end of story

Point of similarity, regarding the last minute trades od E-Trade with a lot of shares.

I just read an article very similar to Sirius and the same thing happening. Only, as I recall, it was a lot more shares in 3 different blocks, all at the last minute/. as a matter of fact, the author note that from 3:30 - 4, there was no purchase or sales for 100 shares or anything close. He seems to feel the stock is being manipulated as for the first time in awhile that day Siri actually made it too over a dollar and than this. How do the big guys just take over a whole half hour of trading on a single security. I'm sure it's not that hard, but sees illogical and almost criminal to me. I'm not a pro, so what do I know

Billy Staples the Mr. Ouch in regard to my portfolio or whats left of it

thedarksize.com

thedowjokesreport.com

2008 Sep 21 11:35 PM

[dan clue:]

I agree the big guys control this industry. I only hope its a sign he knows somethings coming or he or she makes a bid on Etrade. Saying that I've seen the last minute go the other way, WE are like bottom fish hoping our money and our investments grow. Cramer was probably right about investing in etrade at the time. But with the negative assets coming off the books the stock will match ameritrade AMTD. I also believe that they would be acquired before they get to that level I wouldn't be surprised if the day those assets come off the books that there is a bid on etrade.

2008 Sep 22 12:26 AM

[Roberthwlim:]

E-trade is a SUPER-STOCK !!!

I have complete FAITH & TRUST in this company.

2008 Sep 22 05:10 AM

[Njord Wind:]

At 3:59 on Friday someone sold 4M shares. The value of that holding is north of $15M, so the person selling it is likely an asset manager with assets in the hundreds of millions, minimum. You think you know more than them?

Not trying to take a position either way on ETFC, just pointing out that the block sale is not a relevant data point.

2008 Sep 22 09:30 AM

[Njord Wind:]

At 3:59 on Friday someone sold 4M shares. The value of that holding is north of $15M, so the person selling it is likely an asset manager with assets in the hundreds of millions, minimum. You think you know more than them?

Not trying to take a position either way on ETFC, just pointing out that the block sale is not a relevant data point.

2008 Sep 22 09:30 AM

[jackooo:]

Can anyone tell me why this trade did not go thru?
Placed a trade with ETFC after the market closed on Monday. Buy 6 shares Bac.pr.l @ $790. It hit a low of $768 share Tuesday & I still could not buy the shares at $790.

2008 Sep 22 12:25 PM

[rl:]

cramer was right about etfc but time has changed a bit since. the financial stocks are just not worth the risk and the latest news on the street is the perfect proof that it was bad time to invest in financials a few months back. etfc had a head start on getting their act together and executed their turnaround plan before the )%&# hit the fan last week and is in better standing then those big banks in wall street today. i'm out of cash but am very happy that i had enough to buy in @ 2.5 just a few days ago... i seriously doubt it would touch that price mark within the next 10 years unless the entire market collapses. with some restriction going in for shorts and the bailout plan in sight, etfc would be a wonderful buy below 4 just because some of the shorts need to take cover.
i don't think etfc will be merged, i would rather see it grow and surpass the old chuck. etfc was always better then schwab and should pass schwab like bby left circuit city behind while the analyst predicted otherwise. etfc has the innovation and the management to make it worthwhile for the longs.

2008 Sep 22 12:40 PM

[jackooo:]

rl

Enjoyed your comments but as a ETFC big dollar acct. holder I have not seen ANY customer service. The only customer service is when you are pulling the acct. to be put at another brokerage. Then the light comes on and I get calls as to, "What can we do to make you stay?"
I have no loyalty to EFTC. If you read my comment above yours, that is just part of the problem. I have 7 accts. with them and have started pulling out accts. When final options close for the Jan. 09 period other accounts will also be gone.

2008 Sep 22 01:18 PM

[rl:]

where do you think you can get great customer service? what about the tools? i would seriouly leverage on the attention they're giving you and tell them what's wrong and make them kiss your behind for awhile. i'm comfortable at etfc and have no major complains, it's not worth the time to get used to other platforms that doesn't do better if not worst for the same customer service. as far as i know, unless you are paying for attention, you're not likely to get more. good luck and if you find a good place to trade, spread the word and perhaps we'll all benefit from some improvment with the few companies that do care to improve their customer service system.

2008 Sep 22 01:44 PM

[rl:]

jackooo,

btw, glad you enjoyed my rant.

thanks.

2008 Sep 22 01:50 PM

[jackooo:]

rl

I agree about getting use to the other platforms. Scottrade and TD platforms are rough.
I have been complaining to EFTC since they bought Brown & Co. Now that was a great company. With Etrade It goes in one ear and doesn't even hit a speed bump but comes straight out. lol
I have found they are ALL the same. Long waits on the phone and people that know less than me.

2008 Sep 22 02:22 PM

[dan clue:]

What baffels me is Laytons silence when the share price falls 10%. Etrade (ETFC) CEO Layton could help his company if he wasn't so silent he she be telling all the postive things they are working on and the expected close of some of their sales like the etrade of canada. Where is Etrade leadership?

2008 Sep 22 03:26 PM

[dan clue:]

Etrade just announced the sale of its canada operations is complete. They should have announced it earlier as their share price was falling. Does layton want this stock to continue to fall?

2008 Sep 22 07:21 PM

[anastos:]

Will everyone get over E*Trade, please? No one is going to make a dime on that POS. Everyone's been saying a buyout and a huge run up is just around the corner for the last year. I was in and out of this thing months ago at the same prices we're seeing now. It's a joke and with that many shares outstanding, it'll never see the sweet side of $5 ever again.

2008 Sep 24 03:32 AM

[anastos:]

BTW, Dan Blue, it's interesting to note that all 31 of your comments posted here are all relating to ETFC's greatness and ETFC's greatness alone....surely a wise investor like yourself has an opinion on more than one stock, right???

Now I'll get out of your way and let the pumping continue....lol

2008 Sep 24 03:39 AM

[InvestBaboo:]

ETFC is a 3-bagger stock by the end of this year.

2008 Sep 24 05:30 PM

[Lockstep In...:]

My friend, you are an idiot. Buying AIG because you think the sum of the parts = $10 when they admit they have $500B in unhedged credit default swap exposure is really short sighted.

It does not matter if the company is worth $1T, if you don't have at least $250B in cash laying around as a company to meet the CDS collateral requirements, you are toast. That is what is happening to AIG. If you did not know that in Sept or now, you are investing with like a driver with their eyes closed.

Buy index funds and don't complain about how much social security pays.

Feb 25 06:31 PM