E TRADE Slices Over Half of Its Stock Value, Is There An Opportunity for Investors?
(NAMC) – My oh My, does the bleeding ever end due to the sub prime mortgage debacle, doesn't look likely in the very near future. One of the main topics that we’ve been addressing over the past several months, and more frequently over the past several weeks, is the fact that financial institutions are unveiling mortgage related loses.
The latest financial institution to make this announcement is E*Trade Financial, but this one hit the company hard on Monday November 12, 2007. The stock sliced off over fifty percent of its market value as they announced that their earnings will not meet the expectations of Wall Street due to write downs.
These write-downs come from bigger than expected loses as it relates to mortgage backed securities, same as Citigroup and Morgan Stanley, but the difference is that E*Trade is relatively a peanut of a company compared to such giants. So their capability to absorb massive loses may be the concern that is looming.
The company stated that they are setting aside approximately $500 Million to offset potential bad loans and write downs, this was all that it took for analyst to jump on the bandwagon.
Citigroup Analyst Prashant Bhatia took it a step further and titled his report “Bankruptcy Risk Cannot be Ruled Out.”
Granted E*Trade Chief Executive Officer Mitchell Caplan took a risk, just as every financial institution did in the industry, although the dim outlook of analyst such as Bhatia have tickled the selling trigger finger of not only institutions but of small individual investors globally, in my opinion this slide has just put E*Trade Financial at a deep discount.
The stock seems to be oversold and once the dust settles the possibility of the stock climbing at least to the high single digits is there. As I always say buy into weakness and sell into strength, and this is a definite weak point for E*Trade.
Even though their investment portfolio has a sense of horror to it, the stock trading in the $4 range is actually a discount, even though Bhatia from Citigroup senses an air of banruptcy possibilities for E*TRADE, I do not think that it will come to that. The stock shaved off a lot from its stock price in one day, but E*trade trading in the $7-$8 range is actually realistic once calm is restored.
At the very least I would think that this would send a clear signal to other financial institutions and more importantly the Federal Reserve that their moves do have a severe impact.
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