spurred the rally in 2009, but
trailed the pack. Here's a breakdown of the companies based on their investment merits, starting with the weakest firm.
third-quarter loss widened to $832 million, or 66 cents a share, from a loss of $50 million, or 60 cents a share, in the year-earlier period. Its gross and operating margins climbed from negative territory to 6% and 2%, respectively. E*Trade has a weak financial position. Its 3.2 debt-to-equity ratio indicates excessive leverage.
: E*Trade has advanced 46% this year, beating major U.S. indices, even though the company hasn't posted a profit since 2007. Takeover speculation and optimism about its prospects have fueled the rally. Our model gives E*Trade poor scores in all categories. Its shares trade at a discount to peers, based on book value, sales and cash flow. In this case, risk outweighs potential reward.
: Third-quarter net income decreased 57% to $3.7 million, or 9 cents a share, as revenue dropped 24% to $32 million. TradeStation's gross margin narrowed from 36% to 22%, and its operating margin shrank from 33% to 19%. The company has $966 million of cash and no debt.
: TradeStation has risen 11% this year, less than major U.S. indices. Still, the company deserves praise for its shrewd balance sheet management. We give TradeStation a financial strength score of 7.9 out of 10, higher than the "buy"-list average. The company had the top-rated platform for frequent and international traders, and those selling options, among services reviewed by
: Third-quarter net income fell 32% to $16 million, or 28 cents a share, as revenue declined 7% to $62 million. The company's gross margin narrowed from 60% to 44%, and its operating margin tumbled from 57% to 41%. Its balance sheet is a redeeming feature. OptionsXpress holds $1 billion of cash and short-term investments and no debt.
: OptionsXpress has climbed 12% this year, trailing major U.S. indices. The company remained profitable despite falling sales. Its return on equity, a key measure of investment productivity, consistently beats averages for the industry and members of the
S&P 500 Index
. We give OptionsXpress a financial strength score of 7.9 out of 10, higher than the "buy"-list average. The stock offers a 2.1% dividend yield.
: Third-quarter profit decreased 34% to $200 million, or 17 cents a share, as revenue slumped 17% to $1.1 billion. Schwab's gross margin declined from 44% to 36%, and its operating margin dropped from 41% to 32%. Schwab has $26 billion of cash and liquid securities, and $1.5 billion of debt. Its negative growth rates are comparable with those of peers.
has advanced 11% this year, lagging behind major U.S. indices. Wealth management and banking services make its business model more diverse than those of its peers. We give the company a financial strength score of 8.9 out of 10, making it the safest stock of the group. Its shares offer a 1.3% dividend yield. On Wednesday,
initiated coverage at "overweight" and
upgraded the stock to "buy."
: Fiscal fourth-quarter net income declined 9% to $157 million, or 26 cents a share. The profit drop was less than those of competitors. TD Ameritrade's gross margin contracted from 52% to 48%, and its operating margin narrowed from 48% to 42%. The company has $6.7 billion of cash and $1.4 billion of debt.
: TD Ameritrade has increased 28% this year, outperforming the
Dow Jones Industrial Average
and S&P 500. We give TD Ameritrade a performance score of 5.7 out of 10, higher than other online brokerages. On Wednesday, Morgan Stanley initiated coverage at "overweight." TD Ameritrade offers the best investment in the online brokerage group.