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Bear of the Day

The gravy train is going to stop eventually. It’s been one heck of a ride so far. I’m not saying it ends today, but it’s going to end one day. This market has nearly tripled off the bottom in March 2009, screaming higher every day. It seems like the term “All-time high” gets said every single day.

Many companies have been able to cash in on the success of the stock market. Some have done so more than others. In a great trading environment like this you’d think that the online brokerage business is the place to be. So when I see a company not flourishing in what is a great environment, it makes me a bit nervous. That’s the current situation we have with our Bear of the Day, E*Trade Financial (ETFC - Analyst Report).

Baby Steps

We’ve all seen the commercials with the hilarious talking baby. This cute little guy amuses us with his mix of investing knowhow and infant problems. Getting a baby’s perspective on his crib is one of the funnier commercials in the series.

What’s not so funny is E*Trade’s Zacks Rank #5 (Strong Sell) rating. Two analysts have revised their current year earnings targets to the downside over the last month. This pessimism has brought consensus down from $1.06 to $1.02 per share for the current year and down from $1.24 to $1.16 for next year.

E*Trade is facing increased competition online from the likes of ScottTrade, Interactive Brokers, and others. When it comes down to it, the commission per trade is beginning to be the only thing that sets these online brokers apart. You could argue that the platforms are different but having tried several myself I find there is a great deal of similarity. After all, there are only so many ways that you can set up a computer screen for trading stocks.

Marketing Efforts

In a mad dash to get rollover monies from the burgeoning baby boomer retirees, E*Trade has aggressively been incenting new customers to come over. Some of these incentives are straight cash rewards while other are no commission trades for a period of time.

After reaching a high of $25.58 in March of this year, E*Trade has struggled to keep its head above the $20 mark. It has seesawed back and forth at that level several times. Now you have a stock that is nearing the bottom end of a trading range while trading below its 40 day moving average. That could spell the onset of a downtrend coming for E*Trade.

If you’re looking to cash in on the brokerage business, a better idea may be to go with one of the older, established full-service brokerage firms. For example, Piper Jaffray (PJC - Snapshot Report) is currently a Zacks Rank #2 (Buy) that may be an attractive alternative. 

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