The Best of Breed Brokerage Company

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Editor's Note: Per a Schwab PR rep and the corporate website, they actually do have introductory offers for new clients. This version has been corrected.

As the market continues to gain strength, more people are beginning to enter the investing world. With financial advisors, hedge fund managers, and other professionals being less trusted than ever, people want to invest on their own. In doing so, chances are they will open an account with one of three companies: TD Ameritrade (NYSE: AMTD), Charles Schwab (NYSE: SCHW), or E*Trade Financial (NASDAQ: ETFC). These have been three of the top performing stocks in the entire market year-to-date, outperforming the S&P 500 by over 10%. 

TD Ameritrade is my favorite stock in the space due to their track record of industry-eading customer service, innovative tools and products provided to clients, and competitive pricing. The company offers the ability to invest in stocks, options, futures, forex, bonds, ETFs, CDs, annuities, and mutual funds. By acquiring thinkorswim in 2009, TD Ameritrade became the leader in both stock trades and retail options trades per day. Overall, they are the second largest brokerage in the US, with 5.8 million funded accounts with a total of over $470 billion in assets as of December 2012.

2012 Financial Overview

2012 was a solid year overall, but a bit of a disappointment. Earnings per share dipped 4.5% to $1.06 per share, while revenue fell 4% to $2.64 billion. However, TD did manage to raise their dividend by 20% to $0.24 annually, a positive for investors. 

$40.8 billion in new client assets were added in 2012. This showed that growth was still going strong in this aspect of the company, as $33.9 billion was added in 2010 and $41.5 billion in 2011. By continuing to add more assets, TD Ameritrade's fee structure can come into play and begin to ramp up revenue. The fee structure, by percentage, looks like this:

First Quarter 2013 & Stock Snapshot

As of the close on March 14, TD Ameritrade is trading at $21.13. They reported first quarter earnings on Jan. 22 and beat expectations by 12.5%. Since then, the stock has risen nearly 12%. With earnings per share of $1.06, the stock is trading at a multiple of 19.9, slightly below the industry average of 21.4. 

Projections for 2013-2015

Earnings are expected to grow steadily for the next 3 years. Analysts predict a 4.7% growth in 2013, 11.7% in 2014, and 15.3% in 2015. 2013 is not as impressive as I would like, but my main focus is 2015. TD Ameritrade is currently trading at just 14.8 times those earnings, a very cheap multiple in this industry. 

The Schwab

As of December, Charles Schwab is the largest of the online brokers. They currently serve more than 8.5 million accounts with over $1.9 trillion in assets. They, like TD Ameritrade, made a large acquisition when they purchased OptionsXpress in 2011, giving them more exposure to the options market.

Charles Schwab's stock has had a great year so far, up a little over 17%. Earnings are projected to rise 7.3% in 2013, so the stock should continue to rise into 2014. If this stock is to pull back 5%-10%, it may be one to consider.

E*Trade

With nearly 3 million accounts and over $200 billion in assets, E*Trade Financial is the third largest brokerage company. This was the most troubled of the brokers during the recession, but they have since fixed most of the problems that caused the instability.

E*Trade was the best performer of the Big 3 this year, gaining over 28.5%, before falling 8.21% on March 14. The drop came after E*Trade's largest shareholder, the hedge fund Citadel, announced they were selling their entire 9.6% stake. After this sharp move lower, I do not want to touch this company.

The Foolish Bottom Line

Brokerage companies have been on a tear over the last 3 months and should continue to show strength in the years to come. TD Ameritrade is my favorite company in the industry, but Charles Schwab is a close second. E*Trade Financial has hit some bumps in the road, so I want to stay away from this one for the time being. We have had a strong market rally over the last few weeks, so I would wait for a few down days to buy any stocks. Keep in mind, 2015's growth is why I like TD Ameritrade, so this is a long-term investment idea. 


Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends TD Ameritrade. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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