Discount Brokers on Parade

Yesterday was a good day for TD AMERITRADE (Nasdaq: AMTD  ) because its shares rose 3% despite the company missing Wall Street's quarterly profit target.

No, it's not as if TD AMERITRADE is clutching an immunity idol. Investors simply chose to overlook the discount broker's lackluster fiscal first-quarter performance upon hearing that "retail investor engagement" is picking up in January.

As for the numbers, earnings fell to $0.23 a share, short of both the $0.31 a share it delivered a year ago and the $0.26 a share that analysts had been banking on. Net revenue of $624.6 million inched 2% higher, but also came up slightly short of expectations.

The rearview mirror wasn't all bad. Average client trades and net new assets grew. Good things happen when new money is coming in, and existing accounts are appreciating, given the buoyant markets. TD AMERITRADE is now watching over $319 billion in client assets, with a record $58 billion in cash.

That last point can be favorably extrapolated into a bullish sign for equity prices in general. Given the pathetic interest rates being paid out on parked cash, lame greenbacks on the sidelines may be deployed back into the market.

Brokers certainly wouldn't mind that kind of trading activity. Charles Schwab (Nasdaq: SCHW  ) spooked the market last month when it announced that its daily average revenue trades slipped badly in November (off 11% from October and a sharper 27% from the previous year).

Schwab's news is the reason why investors weren't expecting much out of TD AMERITRADE, Schwab, and E*TRADE (Nasdaq: ETFC  ) in their latest quarters. Days before Schwab's news, Goldman Sachs marked down its price targets on the three brokers, as well as optionsXpress Holdings (Nasdaq: OXPS  ) and TradeStation (Nasdaq: TRAD  ) .

The industry will now have to see if the strength so far in January sticks. Even before TD AMERITRADE's report, analysts were viewing a year-over-year drop in the broker's first quarter as an anomaly. The pros still see earnings growing 9% for the entire fiscal year to $1.20 a share -- and then taking a bigger 30% step to $1.56 a share next year.

TD AMERITRADE's stock is reasonably priced in the teens, and an absolute bargain if trading activity has in fact picked up. Both TD AMERITRADE and Schwab posted bottom-line decreases yesterday, but sector investors have already learned to trade in those rearview mirrors for better windshield wipers.

What's that? You're still unsure about whether or not you should get a new broker? Get thee to our Discount Brokers Center to learn more and compare some sponsored commission schedules.

Charles Schwab and optionsXpress Holdings are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990 but does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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