Amid global headwinds, the domestic market indeed looks like a safer area for investments. The Federal Reserve’s announcement of the most awaited increase in the benchmark rate after more than nine years serves to depict the U.S. economy’s gradual improvement since the 2008 financial crisis.
Several factors that led to the interest rate hike include growth in household spending and fixed investments, improving housing sector and declining unemployment in recent months.
We believe adding E*TRADE Financial Corporation ETFC to your investment portfolio is a good idea right now. Notably, the New York-based brokerage firm, which gained more than 23% year to date, continue to reflect strength in several areas.
Why is the Stock an Attractive Pick?
Benefit from Rate Hike: With a rise in rates, brokerage firms are likely to engage in more investment activity. As brokerage firms earn interest income on un-invested cash in customer accounts, the rate rise will allow the brokerage firms to invest at higher rates. As E*TRADE currently derives nearly 60% of its total revenue from interest income, the company is set to benefit from the recent rate hike.
Restructuring measures: E*TRADE successfully achieved its target of reducing debt to $1 billion this year. We also remain encouraged regarding E*TRADE’s latest restructuring move of eliminating its entire wholesale funding obligations. This is expected to significantly improve the company’s balance sheet composition with removal of high-cost funding and creating capacity to onboard low-cost deposits in the upcoming quarters.
Notably, Moody's Investors Service upgraded E*TRADE’s credit rating to investment grade status from its prior status of junk bond owing to the company’s improved financial profile. Further, E*TRADE now targets a balance sheet size of $50 billion by early 2016.
Share Buyback Initiated for the First time in over 8 years: Driven by a solid capital position, E*TRADE is now focused on returning capital to its shareholders. Last month, the company announced a repurchase authorization of up to $800 million of its common stock. Notably, this is the first time in over eight years when the firm returned capital to shareholders through share buybacks. We believe that as the company strengthens its overall performance, it may gradually enhance shareholders’ value with a dividend payment as well.
Favorable Zacks Rank: E*TRADE currently carries a Zacks Rank #2 (Buy). This is driven by upward estimate revisions over the last 60 days. For 2015, the Zacks Consensus Estimate moved nearly 2% to $1.16 per share. Also, for 2016, it moved north 3.3% to $1.57 per share.
Considering the above-mentioned positive traits, we believe investing in E*TRADE should not disappoint you.
Other Stocks to Consider
Other top-ranked stocks in the finance space include Evercore Partners Inc. EVR, The Charles Schwab Corporation SCHW and TD Ameritrade Holding Corporation AMTD. All three stocks carry a Zacks Rank #2.
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