found a bottom Wednesday, with its stock edging higher after a two-day tumble that clipped nearly 28% off the company's shares. At midday the electronic trading firm was trading at 35 5/16, up 1 3/8.
A number of factors -- including being technically oversold -- contributed to E*Trade's up move in a declining market. For starters, Michael Chung, an analyst with New York-based
Williams Capital Group
, raised his rating on E*Trade Wednesday morning to buy from hold. Williams Capital hasn't participated in any E*Trade underwriting projects.
"While we have always liked E*Trade on a long-term basis, our initial hold rating was one based on valuation and the valuation disparity that existed between EGRP and its nearest competitors,
," Chung wrote. "Since this gap has been dramatically narrowed recently, we believe this represents an excellent opportunity for investors looking to get in on one of the strongest brand names on the Internet and the online discount brokerage industry in particular."
Chung noted that E*Trade should overtake
this quarter as the No. 2 player in the online brokerage industry, grabbing about 20% of the market, up from about 13%. Charles Schwab ranks first with a 35% share of daily online transactions.
And E*Trade could even report a surprisingly high number of new accounts when it reports its year-end earnings later this month, he said. Its fast growth rate will slow as its account base grows, Chung says, but "we believe it will be several quarters before growth slows significantly enough to impact the company's profitability."
Deutsche Morgan Grenfell
estimated in a report Wednesday that E*Trade's new alliance with
"opens the door" to 5 million to 10 million new accounts.
(As originally published, this story said that E*Trade "could add 5 million to 10 million accounts" while not technically wrong, that language could be read as overstating the report.)
E*Trade has about 220,000 accounts. Deutsche Morgan, which rates E*Trade a buy, expects E*Trade to sign three more regional-bank alliances. DMG has participated in E*Trade underwriting projects.
E*Trade's stock was hammered by concerns about a price war in the online brokerage industry after Fidelity and
Quick & Reilly
cut their per-trade prices Monday. Industry leader Charles Schwab is widely expected to follow their moves, though it says it has no plans to do so. But Fidelity and Quick & Reilly essentially lowered their prices to E*Trade's level, $14.95 a trade. Another competitor, AmeriTrade, broadened an $8-a-trade offer to include more customers, but observers expect higher-priced players will offer better services than the deep-discounting AmeriTrade.