Time to Bet on the Traders

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Brokers are busy these days.

If you're angling for proof, check out this morning's report out of discount brokerage TD AMERITRADE (Nasdaq: AMTD). The company wrapped up its fiscal year with a 14% spike in average client trades during the final quarter. Revenue grew 13% to $649.2 million, as earnings dropped 12% to $0.29 a share. The results topped Wall Street's top-line expectations, but came up short for the bottom line.

It could be worse. Rival E*Trade (Nasdaq: ETFC) posted a significantly wider deficit than the market was expecting Wednesday. It doesn't get any prettier if you venture out into the investing vehicles that discount brokerage clients are clamoring for. Mutual fund giants Janus (NYSE: JNS) and Franklin Resources (NYSE: BEN) posted steeper drops in quarterly profits than TD AMERITRADE this morning.

The saving grace for the discounters is that they remain hotbeds of activity. Net assets are growing, unlike the hits to outflows and asset values you find at most mutual fund families. Volatility also works wonders in waking up inactive investors. Between the 14% increase in daily trading activity at TD AMERITRADE, the 7% jump at E*Trade, and last week's 12% increase in revenue trades at Charles Schwab (Nasdaq: SCHW), the discounters are certainly hopping these days.

TD AMERITRADE's new fiscal year is off to an even crazier start, going by October's wild market swings. Naturally, this is only a near-term benefit. If battered investors eventually lose faith in stock trading, the discounters will have plenty of time to fire up a game of solitaire on their terminals.

For now, TD AMERITRADE is initiating a wide range of guidance for the year ahead. It is looking to earn $1.10 to $1.42 per share in fiscal 2009. After earning $1.33 a share for fiscal 2008, the company's streak of six years of record performances is being threatened. Then again, this is also the trade trade. Guidance will bounce around with every passing quarter, given the whims of the investing public.

The disparity between a flurry of trading activity and share prices collapsing is certainly making TD AMERITRADE attractive as an investment: It's now trading for less than 10 times trailing earnings. It remains to be seen when investors will confidently warm up to the stock market again, but when they do, they may as well start by buying shares in the discount broker they're using.