E*TRADE Is No One-Hit Wonder

It wasn't a fluke.

E*TRADE (Nasdaq: ETFC  ) surprised investors with its first quarterly profit in three years three months ago. Last night, it delivered an encore performance.

The discount broker managed to post a profit of $0.03 a share, despite a dearth of trading and a large number of defections from its online banking offerings.

Daily average revenue trades fell by a sharp 26% relative to last year's third quarter. Investors saw this coming. Larger rival Charles Schwab (Nasdaq: SCHW  ) posted a similar 23% slide for the same period last week. TD AMERITRADE (Nasdaq: AMTD  ) will likely confirm the apathy when it reports next week.

E*TRADE's profitability is commendable, especially given the competitive commissions that brokerage clients expect and the lackluster fixed income yields that those same accounts detest.

Yes, E*TRADE's net new online banking accounts took a hit. The once-chunky yields that the discounter used to promote are toast. The financial services industry is scrambling to crank out any kind of yield without subsidizing its savings and checking vehicles too aggressively. However, E*TRADE did tack on to its more important brokerage and stock plan accounts.

The discount broker with the chatty spokes-toddler is doing just fine in this climate. Net new assets are climbing. Delinquencies are falling. The sector itself may lack sizzle until investors begin trading again, but it doesn't mean that these aren't quality companies.

Investors don't have to rush in. Beyond E*TRADE's return to profitability, analysts see lower earnings out of Schwab, TD AMERITRADE, optionsXpress (Nasdaq: OXPS  ) , and Interactive Brokers (Nasdaq: IBKR  ) this year. They are all expected to bounce back sharply on the bottom line in 2011, but this is an industry where a shift in trading activity can make profit targets obsolete fairly quickly.

For now, E*TRADE can enjoy its profitable showing -- even if the positive result of a mixed quarter isn't drawing much of a crowd.

What's that? You're still unsure about whether you should get a new broker? Get thee to our Discount Broker Center to learn more and compare some sponsored commission schedules.

Interactive Brokers Group, optionsXpress Holdings, and Charles Schwab are Motley Fool Stock Advisor selections. The Fool owns shares of Interactive Brokers Group. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990, but he 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 Foolhas a disclosure policy.


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