It's easy for individual investors to gravitate toward the
discount brokers. If you're taking control of your finances
and arriving at your own buy-and-sell entry points, online
discounters look pretty good.
Unfortunately for those same investors, the discount
brokers aren't all built the same.
Every week, I take a stock to task in this column. I'm no
meanie. I do come right back with three related
recommendations that I think will be better in your
portfolio. With two of the biggest discounters reporting
yesterday, I know just where I'm going this time.
Who gets tossed out this week? Come on down,
E*TRADE (Nasdaq: ETFC).
A fine line between broke and broker
I have been a big fan of E*TRADE over the years, but I
have to call it out this week.
E*TRADE and rival
TD AMERITRADE (Nasdaq: AMTD) posted their
quarterly reports just hours apart yesterday, and the
disparities are obvious.
Charles Schwab (Nasdaq: SCHW) stayed
prudently away from the subprime meltdown's collateral
damage.
TD AMERITRADE is projecting a profit of $1.10 to $1.40
a share in its new fiscal year. E*TRADE isn't telling
investors when it will return to profitability.
One can argue that E*TRADE's lottery-ticket price
discounts its shortcomings, but shareholders deserve better.
Despite last year's
E*TRADE Baby rollout-- the industry's best marketing
campaign, really -- and rallying markets this year, its
quarterly financials are still in the red. It also posted an
11% sequential decline in daily average revenue trades this
past quarter.
There's always the chance that Schwab or TD AMERITRADE
will pounce on E*TRADE as a buyout target, but its
self-inflicted dilution is going to ultimately drive down a
potential acquisition price.
Good news
As I do every week, I don't talk down a stock unless I
have three alternatives that I believe will outperform the
company getting tossed. Let's go over three new fill-ins.
Morningstar (Nasdaq: MORN): The mutual fund
and equity research specialist reports its third-quarter
results tomorrow. The first half of 2009 wasn't very
encouraging. Revenue declined by 8% to $236.3 million, with
earnings slipping a little bit more. It's still holding up
better than smaller research facilitators
TheStreet.com (Nasdaq: TSCM) and
Value Line (Nasdaq: VALU), and the
year-over-year comparisons should get easier.
China Finance Online (Nasdaq: JRJC): If
betting on the evolution of independent research is a
healthy theme, why not double down with an overseas play?
China Finance Online runs the popular stockstar.com and
jrj.com financial portals in China. It has
struggled this year, but it still watches over 12.4
million registered users, with more than 100,000 of those
paying as premium subscribers. Renewed faith in China's
equity markets will help, as analysts see a quick return to
profitability next year on 32% revenue growth.
TD AMERITRADE : Since the bulk of my
bearish thesis was built on sizing E*TRADE against TD
AMERITRADE, I may as well pat the victor on the back.
Schwab and TD AMERITRADE are making the most of their
opportunities, but TD AMERITRADE trades at a lower earnings
multiple and appears to be the more opportunistic
consolidator. Whether it adopts the E*TRADE Baby or not,
you have to like its chances as long the market doesn't
head south.
Sorry, E*TRADE Baby. Let's hope things get better during
your terrible twos. Â
This article was originally published as
Throw This Stock Awayon
Fool.com
Copyright © 2009 The Motley Fool, LLC. All
rights reserved.
|