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Why E*TRADE Struggled in 2011

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Know your stocks. If you're hanging on to various companies without really understanding them or knowing what they're up to, you leave yourself extra vulnerable to nasty surprises. The more you know, the better able you'll be to decide whether to hang on or move your money into something more promising. (And believe me, there are lots of promising companies out there!)

Today, let's take a look at E*TRADE Financial  (Nasdaq: ETFC  ) . After posting some big losses in recent years, the online broker is finally on pace to get into the black for 2011. Despite that, its stock didn't give investors a lot to smile about in this year. In fact, the Citadel hedge fund was so unhappy they urged the company to sell itself off. (E*TRADE has since decided to not do so.)

Stats on E*TRADE

Year-to-Date Stock Return (50.5%)
Market Cap $2.26 billion
Revenue, Trailing 12 Months $1.39 billion
1-Year Revenue Growth (15.4%)
CAPS Rating (out of 5) ****

Source: Motley Fool CAPS, Morningstar, Yahoo! Finance.

What happened to E*TRADE this year?
Like other brokerages, E*TRADE has been whacked by the sluggish stock market of the past few years, which has left many investors not so eager to be buying and selling stocks. Still, sluggishness usually doesn't last forever, and there were signs of a recovery early this year, when E*TRADE and peers such as Charles Schwab  (NYSE: SCHW  ) , Interactive Brokers  (Nasdaq: IBKR  ) , and TD AMERITRADE (Nasdaq: AMTD  ) posted relatively strong growth in trading volume.

One area in which E*TRADE has lagged until recently has been in having an ETF (exchange-traded fund) strategy. My colleague Dan Caplinger pointed this out throughout the year, and just this month, news broke that the company would offer commission-free ETFs for its customers. The strong line-up includes broad funds such as the WisdomTree LargeCap Dividend ETF (NYSE: DLN  ) as well as more focused ones, such as the Global X Lithium ETF (NYSE: LIT  ) , which serves those bullish on the future of lithium batteries. Given the booming popularity of ETFs and how some of them have great growth potential, it's promising that E*TRADE finally joined the party.

A nagging problem for the company has been problem mortgage and home equity loans it wrote back in the housing boom. It has been working on improving that, recently agreeing in principle to settle class action lawsuits against the broker that alleged E*TRADE violated its duty to shareholders.

If you're thinking of buying E*TRADE or you already own it, learn more about it and be sure you're confident in its potential. If you've decided it's not one of your best ideas, then look elsewhere, such as in our free report detailing The Motley Fool's pick for the top stock for 2012. It's free only for a limited time, so check it out today.

Be sure your brokerage is the best for you. Spend some time in our Discount Broker Center to learn more and compare some sponsored commission schedules.

Longtime Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Interactive Brokers Group. Motley Fool newsletter services have recommended buying shares of Charles Schwab and Interactive Brokers Group. 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.


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Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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