TD Ameritrade: A "Bull Market" Stock

01/30/2017 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

TD Ameritrade (AMTD) is very strong today for one reason — it’s a bull market stock — that directly benefits from a rising stock market, explains growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

Investors are anticipating increased trading volumes, asset values and interest rates pushing the company’s bottom line higher in the quarters ahead.

Granted, to this point, the headline growth figures have been relatively muted; last week’s third-quarter report saw sales and earnings up mid-single digits.

But there are already signs that things are perking up — the fourth quarter saw $18.7 billion in net new client assets (up 24% from the prior quarter) and 487,000 trades per day (up 10%), all while profit margins remained huge (25.1% after tax).

Management is somewhat cautious in its outlook for this year, and analysts are following that lead, seeing earnings up just 9% for 2017.

But, really, it all depends how the year goes — Ameritrade’s earnings will rise a penny per share if its daily trades increase by 3,000, and earnings will rise eight to 10 cents per share for every quarter-point hike in interest rates!

Thus, there’s easily the potential for more rapid growth if the bull market picks up steam and if the man on the street comes back to the stock market.

A tidy dividend (1.6% annual yield) and a modest share buyback program (share count was down 1.9% from the year before) puts a nice bow on the package.

AMTD looks like a lot of financial stocks—a long period of no progress followed by a persistent and powerful advance since the election.

The stock was sitting below $34 just before the election, the same level it was at back in early 2014, but since then, shares have kited higher with only a couple of small dips along the way.

One of those dips occurred just after earnings, but we like how AMTD found big-volume support on the dip. We think you can buy some in the $44.50 - $46 range with a tight stop near the 50-day line around $41 to $42.50.

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