Brokerage Bets

10/10/2003 12:00 am EST

Focus:

Three leading investment authorities using three different approaches are seeing opportunity in the brokerage stock sector. Fundamentalist Donald Rowe chooses Ameritrade. Joe Sunderman, who focuses on sentiment-based analysis, selects Merrill Lynch. And technician Ralph Acampora opts for both Merrill and Schwab. (For more information on each of these advisors, click on their photos.)

Rowe, Donald"Ameritrade Holding (AMTD NASDAQ) is a provider of securities brokerage services and technology-based financial services to retail investors and business partners, predominantly via the Internet," says Donald Rowe, editor of The Wall Street Digest.  "Ameritrade also provides trading execution and clearing services for its own broker-dealer operations and for unaffiliated broker-dealers through the company’s subsidiaries. Currently serving over three million investors, Ameritrade is a leader in the online brokerage business, and was a recent recipient of Forbes magazine’s annual ‘Best of the Web’ honors. Over the past four quarters, Ameritrade has realized earnings growth of 300%, 100%, 25%, and 300% on sales increases of 88%, 39%, 67%, and 24%, respectively. The company is expecting earnings of $0.30 per share this year, an increase of 147% from last year, while the industry is expecting an increase of 6%. Long-term earnings growth is expected to average 15% annually."

Sunderman, Joe"Merrill Lynch (MER NYSE) is our latest featured stock," says Joe Sunderman, an analyst with Schaeffer Investment Research. "MER has been on an impressive run over the last several weeks with the shares of this major brokerage house gaining 65% since mid-March. The stock has been hugging its 10-week moving average with no significant breaches of this trendline since spring. Amid this uptrend, the put/call open interest ratio on MER has also been in a nice uptrend. In other words, while the shares of MER have been trekking higher, options players have been betting against the uptrend the entire time. This is a perfect Expectational Analysis setup whereby a stock is in a strong uptrend and the Street is bearishly positioned. We continue to see the skepticism among the speculative crowd, as the put/call open interest ratio recently rose and now stands in the 95th percentile. Traders should target a move to 61.70 with a stop-loss on a trade below 54."

Acampora, RalphAdds technical analyst Ralph Acampora of Prudential Securities, "Merrill Lynch (MER NYSE) is rated 'Overweight' by Prudential Equity Group, Inc. fundamental research. Technically, the stock is extending its uptrend that started in March. This stock is currently retesting its resistance high of $56-$57; risk is to support in the $53-$54 area. Since mid-July, MER has remained relatively flat in price, but the rising lows enable us to use the swing method that now gives us an objective to the mid to upper $60s. Meanwhile, based on its fundamentals, Charles Schwab (SCH NYSE) is also rated 'Overweight' by Prudential Equity Group. This stock appears to be setting the stage for higher prices. It is about to emerge from a bottoming configuration that commenced in mid-2002. Risk (support) is to the $10 area. Any move above resistance at $12-$13 would give us the opportunity to use our swing method—if this occurs, we could see SCH back to the $18-$19 area."

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