OptionsXpress: For High-Risk Investors Only

Posted Dec 3rd 2010 12:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

OptionsXpress Holdings (OXPS) has been a potential play that's been on my radar screen for a considerable period, and is worth a review.

OptionsXpress provides online brokerage services for stock, mutual, fund, option, and fixed income investors.

The company's primary product is options, and with margins squeezed due to intensifying competition, the initial read was to stand-aside with OXPS.

However, throughout this period Options has increased its customer asset base -- customer accounts rose 8% in the 12-month period through September -- broadened its product line, and rolled-out tech improvements at a decent pace. Further, the acquisition of Optionetics will increase education revenue.

Despite the above, I view OptionsXpress as a high-risk stock not suitable for low-risk or moderate-risk investors. Don't consider OXPS if you can't tolerates a 30-40% stock plunge -- it could happen.

The Thomson Reuters First Call FY2010/FY2011 EPS estimates for OXPS are 87 cents to 94 cents.

Technically, OXPS appears to have put in a bottom at $14, and a recent move above the key, 50-day moving average is encouraging.

2011 Outlook: I view OptionsXpress as a long-term play, but if you're looking to sell OXPS within the year, it's probably best to take your profits after it rises to $23 to $26, if it fails to rise above $27.

Stock Analysis: I consider OptionsXpress to be a high-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in OXPS now, then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my OXPS position before February 2011, and I'd put a sell/stop loss at $7.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.