Eye on Insiders: E*TRADE

Watching insiders is like participating in a weeks-long stakeout. You expect something to happen, but you don't know what. So you settle in, sip your coffee, and wait for clues to solving the big case.

Here, the "case" is direction: Which way is your stock headed? The "clues" come in the form of insider buying and selling action. Have a look at E*TRADE (Nasdaq: ETFC  ) over the past year.

Insider Rating

Bullish
Multiple buys from different board members, with some purchased at much higher prices than what the stock trades for today.

Business Description

A leading online brokerage that's been significantly hurt by the global financial crisis. Also, the producer of those baby trader commercials. (You know what we mean.)

Recent Price

$1.46

CAPS Stars (Out of 5)

****

Percentage of Shares Owned by Insiders

16.94%

Net Buying (Selling)*

$198,045

Last Buyer (% Increase)

Donna Weaver, director
100,000 shares at $1.22 apiece on June 19, 2009
(Purchase bolstered direct holdings by 84%)

Last Seller (% Decrease)

None over the prior 12 months

Competitors

Charles Schwab (Nasdaq: SCHW  )
TD AMERITRADE (Nasdaq: AMTD  )

CAPS Members Bullish on ETFC Also Bullish on

General Electric (NYSE: GE  )

CAPS Members Bearish on ETFC Also Bearish on

Bank of America (NYSE: BAC  )
Citigroup (NYSE: C  )

Recent Foolish Coverage of ETFC

E*TRADE Makes a Good Trade
E*TRADE Rips Off the Bandage
E*TRADE Is Doing Better Than You Think

Sources Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of July 29, 2009.)
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times, they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: Bullish
Banking has been bad business recently, but with the Dow soaring past 9,000, you'd think that stock and options trading volume was on the rise. If so, that'd be good news for E*TRADE and exchanges such as NYSE Euronext (NYSE: NYX  ) . Alas, that's not the case. The broker-cum-banker reported a larger second-quarter loss last week on a 55% increase in charge-offs.

So why are insiders buying? Perhaps because revenue is rising dramatically, up close to 17% in Q2. Once E*TRADE unwinds its worst assets, new deposits and higher trading volumes could fuel growth and healthy gains for investors.

"[E*TRADE] was one of the first companies to recognize their banking problems and work to resolve them," wrote CAPS investor outoffocus in June: 

... They sold off some of their assets and focused on their core business. They obtained private financing before TARP was even thought of. Despite constantly being dogged by the media they launched an aggressive ad campaign to bring in more business. They introduced online trading into the smartphone world with [E*TRADE] Mobile. Just based on these efforts alone I would like this company to succeed

I concur -- but that's just my take. Do you agree? Disagree? Log into CAPS today and tell us how you'd rate E*TRADE.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here, or use the comments box below. I'll write this column as often as you, our readers, demand.

More of the inside scoop:

NYSE Euronext is a Rule Breakers recommendation. Charles Schwab is a Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers owned shares of TD AMERITRADE at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy has its eye on you.


Read/Post Comments (7) | Recommend This Article (33)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2009, at 4:24 PM, kamuirei wrote:

    Disagree... E*Trade is a hype stock.

  • Report this Comment On July 31, 2009, at 12:10 AM, johnbrown333 wrote:

    E*Trade has a potential. They are on the right track.

  • Report this Comment On July 31, 2009, at 6:15 AM, fudog7 wrote:

    e*trash is going the way of sirius...Several months ago there was also a similar article just like this one on sirius! where is your beloved siri now?

  • Report this Comment On July 31, 2009, at 6:37 AM, fudog7 wrote:

    There are 300 hundred+ other bank/investment firms stocks that I would buy before this one. You have a better chance of making a run at CIT before this trash...And we all know where CIT is going. Then again I could be wrong and in a few months Mr. Beyers will be writing an article just like this one that CIT is about to make a big bounce from the grave...lol. Can this same "fool" also write up an article about DRYS too while your at it!

  • Report this Comment On July 31, 2009, at 2:49 PM, plange01 wrote:

    i was just opening a e-trade account when i realized the company is controlled by the hedge(trash fund) citadel.time to put my money somewhere else! no wonder etrade is bankrupt!

  • Report this Comment On July 31, 2009, at 6:09 PM, RichardLC wrote:

    Wow, so glad I bought a tub full at 1.22. :) I'm guessing none of the posters here caught that little play, too bad.

  • Report this Comment On August 09, 2009, at 9:14 AM, Boogerdoodleboo wrote:

    If you take a look at the balance sheet, there is too much padding (goodwill, etc.) to call this a good stock.

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