E*Trade (NASDAQ: ETFC) is a well-known brand in the broker space. It competes vigorously with the other giants, TD Ameritrade (NASDAQ: AMTD) and Charles Schwab (NASDAQ: SCHW). To be honest, if I were looking for investment ideas in this sector, I would probably begin my search with the latter two. It's difficult to put E*Trade on the list. The company got in trouble during the financial crisis because it was exposed to the mortgage industry. It has now become, in my opinion, a speculative play on a return to glory.
The latest earnings report shows what I'm talking about. For the third quarter, E*Trade lost, on a GAAP basis, 66 cents per share from continuing operations, wider than the year-ago loss of 60 cents per share from continuing operations. After adjusting for an item related to debt extinguishment, the current red ink is equal to 5 cents per share.
According to Reuters, the expected loss was 6 cents per share, so you can call it a beat-by-the-proverbial-penny situation if you'd like, but I prefer to call it what it is: a not-attractive situation.
Am I correct in saying this? As we move forward and away from the nasty plague of recession, E*Trade will indeed most likely set itself straight. I can buy such argument. E*Trade, as I stated at the beginning, is a name familiar to most investors. Many enjoy its platform and services. It isn't necessarily going away. And who knows, maybe it will engage a merger deal of some sort in the future, one that would add value for current shareholders.
But, after going through the earnings release, the E*Trade scenario fails to instill any confidence in my investor psyche. Plus, when I look at the stock itself, I see a single-digit entity more akin to a chip to be placed on some betting table in Las Vegas than a thriving equity of the future.
Yes, E*Trade may come out of its troubled period some years down the road stronger than ever before. Until that time, I'll screen for alternative, less-risky vehicles with a bias toward capital appreciation.
Disclosure: I don't own any company mentioned; positions can change without notice.