S&P 500   4,397.94
DOW   34,265.37
QQQ   351.69
S&P 500   4,397.94
DOW   34,265.37
QQQ   351.69
S&P 500   4,397.94
DOW   34,265.37
QQQ   351.69
S&P 500   4,397.94
DOW   34,265.37
QQQ   351.69

Morgan Stanley Asks E-Trade to Dance

Friday, February 21, 2020 | MarketBeat Staff
With a plus 20% jump in its share price, E-Trade (NASDAQ: ETFC) was the standout performer in the S&P 500 on Wednesday after Morgan Stanley (NYSE: MS) announced their purchase of the online broker for a cool $13 billion. Few will be surprised that E-Trade is getting picked up, given how quickly the big trading names have swallowed up the more niche ones after the race to zero commissions intensified last fall.

For the past couple of months, the rumors on Wall Street were that Goldman Sachs (NYSE: GS) would be the buyer and it will be interesting to learn in the coming days how and why Morgan Stanley pipped them at the post. The acquisition will be the biggest deal by a US bank since the 2008 crash and Morgan Stanley is expecting good things to happen as a result. For example, they’re forecasting an extra $400 million in revenue from cost cuts and another $150 million saved via E-Trades low-cost deposit structure. They’ll also gain E-Trade’s 5 million online customers and over $350 billion in assets.

Good Timing

Fundamentally as well, it looks as if this is a good time to be picking up E-Trade. Earlier this month, their daily average revenue trades showed a 19% jump from December’s number and an even more impressive 68% jump from January 2019’s number. New retail accounts were also up 28% and 18% over the same time periods respectively. E-Trade’s Q4 earnings release in January was better than expected. Non-GAAP EPS beat analyst expectations and while revenue contracted over 7% year on year, it was still better than the consensus.

The acquisition is probably a best-case scenario for E-Trade investors. As we noted last month, “the race towards the bottom between online stockbrokers and their commissions ramped up a gear in October when Schwab (NYSE: SCHW) announced they were scrapping all commissions on stock trades. Since the likes of Robinhood burst onto the brokerage scene with a no-fees mission in 2013, the more traditional brokers like Schwab, TD Ameritrade (NASDAQ: AMTD) and E-Trade (NASDAQ: ETFC) have struggled to remain attractive to newer traders or those with smaller accounts. It felt like the levee broke in October when, like dominoes, they and many others announced they would no longer charge fees on stock trades.”

As the dominoes fell, so did the stock prices of the online brokers. E-Trade’s shares plummeted 20% in the days following Schwab’s move while the latter’s stock also tanked, as did TD Ameritrade’s. In the aftermath of this massive industry shift, the big numbers were crunched and moves were quickly made. Schwab swung first and swallowed up TD Ameritrade at the end of November for $26 billion. While E-Trade’s shares had recovered the ground lost during the initial dip lower in early October, their performance so far in 2020 made them look like they didn’t really want to go much higher so investors will surely be popping bottles tonight.

Who’s Next?

It’s worth noting Morgan Stanley’s stock was out of favor with the news and came off about 5% during Thursday’s session. This is likely just a minor blimp as the news and figures are digested. Their shares are still trading right up at decade highs.

Looking ahead, there’s probably not much of a play to be had with E-Trades shares as the deal is finalized and confirmed but investors would do well to keep an eye on the other online brokers out there. The industry is clearly moving in a certain direction and a well-placed position could yield attractive returns with the right kind of news.

Morgan Stanley Asks E-Trade to Dance
7 Precious Metals Stocks That Will Offset the Effects of Inflation

There’s no getting around it. Inflation is going to be an unwelcome guest at our holiday gatherings this year. Estimates say this will be the most expensive Thanksgiving dinner in years. The Consumer Price Index (CPI) jumped 6.2% in October. That was the biggest surge in 30 years.

But the latest inflation data only confirmed what investors already knew. At least the ones that put gas in their cars or buy groceries. And yet, Washington continues to advocate even more spending. The latest “skinny” infrastructure bill will still pump over $1 trillion (that’s trillion with a “T”) into the economy. Even economists who would usually be favorably disposed to the current administration acknowledge that this will only cause inflation to increase.

That means it’s a good time to consider investing in precious metals which are considered to be safe-haven assets and a hedge against inflation. But that’s not the only reason to consider precious metals. You can also get some nice growth. Gold, for example, is up more than 300% in the past 15 years. And we would certainly advocate that you consider owning a bit of physical metals if you can.

However, buying precious metals stocks gives you exposure to many mining companies. As the spot price for the metals rises, it becomes more profitable for these companies to run their mining operations.

View the "7 Precious Metals Stocks That Will Offset the Effects of Inflation".


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