BY Rick Pendergraft:

Contributor, Stock Traders Daily

Real Time Trading Reports:  Included are detailed trading reports designed to help investors realize opportunities in these companies as earnings are released.  The reports are linked to the stock symbols in the article below. Performance - Click Here

(La Jolla, CA)  Over the past year, investors have seen a wild ride for their investments- between the incredible selling in the fourth quarter of 2008 and early 2009, to the incredible buying that started in March and saw another boost in July.  With all of this action, you would think that discount brokerage firms would be doing relatively well because they are transaction oriented businesses.  So far this earnings season, we have seen Charles Schwab (NASDAQ: SCHW) disappoint with their earnings and revenue report, and we have seen optionsXpress (NASDAQ: OXPS) beat on both the top and bottom line.

Tuesday, two of the five largest discount brokers will unveil third quarter earnings results, giving us a more complete picture of the sector.  Before the market opens, we will hear from Td Ameritrade (NASDAQ: AMTD).  Analysts expect the company to show earnings of $0.22 per share, down from the $0.30 the company earned last quarter and down from the $0.29 the company earned in the third quarter one year ago.  Despite seeing earnings decline over the last year, the stock has nearly doubled over the same time period.   

AMTD has managed to meet or exceed expectations in each of the last three quarters, but with the stock moving so much higher over the last year, it will need to offer up an impressive quarter in order to keep the trend going.  

 

Also reporting on Tuesday is E*TRADE Financial (NASDAQ:ETFC).  ETFC is expected to post a loss of $0.09 per share after posting losses of $0.41 and $0.50 in the two previous quarters.  Unlike its competitors in the discount brokerage sectors, ETFC has not been moving higher over the past year.  In fact, of the four companies mentioned in this article, E*Trade is the only stock that is lower than it was one year ago.  Interestingly, ETFC has been upgraded three times in the last four months, but the overall ratings still show only four “buy” ratings compared to eight “hold” ratings and two “sell” ratings.  Given the stock’s recent performance and the relative pessimism, it seems the reward outweighs the risk on ETFC, but you don’t need to jump in ahead of earnings.

It is said that the stock market is a forward looking mechanism, but it seems as though investors may be looking too far ahead when it comes to the discount brokerage industry.  During the past year, investors have been making huge changes to their portfolios and making more transactions than they normally would, yet we have seen lower and lower earnings for the group.  Despite the slowdown in earnings, the group as a whole has moved higher over the past year.  It seems a little odd to see stock prices rising while earnings have been falling.  Before investing in TD Ameritrade or E*Trade Financial, you will want to look at our free trading reports.