Ameritrade has the Wind at its Back

03/22/2018 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Bull market stocks — those whose businesses benefit from a strong stock and bond market — have perked back up as the market has lifted back to its highs, explains Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.

TD Ameritrade Holding (AMTD) looks like the strongest of the bunch. The stock is strong today for some of the same reasons as peers E*Trade (ETFC)  and Schwab (SCHW) — commissions are kiting higher as more investors jump into the bull market.

Fourth quarter commission revenue was up 24% from the year before despite the industry-wide price cuts last spring and interest income is rising as the Fed hikes rates; net interest revenue was up 83% in Q4.

But the thing that Ameritrade has that its peers don’t is a big, recent acquisition that’s paying off—the company swallowed Scottrade late last year, and that’s significantly boosted client assets ($1.2 trillion, up 48%), interest rate-sensitive assets ($156 billion, up 25%) and should lead to meaningful synergies in the quarters ahead.

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Throw in big growth in bank deposit fees and the corporate tax cut, and Ameritrade should see excellent bottom-line growth going forward — analysts see earnings soaring 70% this year and another 25% next year, though given that Q4’s earnings results topped expectations by 32%, those could prove conservative.

A 1.4% annual dividend yield is a plus. Obviously, if the bull market runs into major trouble, business could shrivel up, but right now, Ameritrade has plenty of wind at its back.

From early 2015 through May 2017, AMTD made no net progress, which surely wore out most weak hands. The stock advanced from there, but it didn’t really outperform the market; the RP line mostly moved sideways through January.

But the stock is gaining steam now—AMTD showed great resilience during the market’s swoon (with multiple days of big-volume support), and after finding support at its 25-day line two weeks ago, has rushed to new highs. We’re OK buying some here or (preferably) on dips.

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