In this Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.
Today's matchup is a battle of two tantalizing stocks investors are too scared to buy: E*Trade
Why are investors scared? In discount broker E*Trade's case, it got too heavily involved in subprime bets. The balance sheet is also a concern for the satellite radio king Sirius XM, but there is also lively debate on the viability of its business model.
Using five short-of-scientific-but-carefully-chosen criteria, let's determine which is the better buy.
Round 1: Balance sheet
I already mentioned that neither balance sheet is pristine. Looking at E*Trade, it's difficult to gauge how thoroughly it has cleaned up its subprime mess. It is very similar to Citigroup and Bank of America in this way. Both of these banks got burned big-time in subprime mortgage-backed assets, with Bank of America adding to its complexity by buying Countrywide and Merrill Lynch. And like E*Trade, Citi and B of A are trading at serious discounts to their former glory. The question on all of them is whether what's behind door No. 2 is a luxury mansion or a burned-down foreclosure. Sirius's balance sheet is more straightforward but equally scary. At more than 20:1, its net debt-to-equity ratio is almost twice that of E*Trade. Though I hate starting out with a tie ... Advantage: Push.
Round 2: Operations
Though the business models of E*Trade and fellow discount brokerages TD Ameritrade
On the new-school front, mobile devices are coming on strong. Apple's
Round 3: Safer bet
In other words, which company will put you in a better position to "never lose money" (as super-investor Warren Buffett says)? Because of its proven operations, I'll give the nod to E*Trade. But it's a very slight nod. Advantage: E*Trade.
Round 4: Sexier bet
Howard Stern? Battling Internet competition on mobile devices? Music for the masses? Shares trading at penny stock prices (though with a legitimate market cap)? Advantage: Sirius XM.
Round 5: CAPS rating
Our CAPS community much prefers E*Trade, giving it four stars (out of five) vs. just two for Sirius. Advantage: E*Trade.
The blow-by-blow recap
Factor |
E*Trade |
Sirius XM |
---|---|---|
Balance Sheet |
½ X |
½ X |
Operations |
X |
|
Safer Bet |
X |
|
Sexier Bet |
|
X |
CAPS Rating |
X |
|
There you have it. E*Trade takes down Sirius XM 3.5 to 1.5, making it our better buy. Before you decide for yourself, check out the three most compelling numbers on each company here and here. What do you think? Vote in the poll below. Then share your thoughts in the comments box below the poll.