E*Trade Financial

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It shouldn't come as a huge surprise that E*Trade Financial ( ETFC) is having a good year in 2013. Shares of the discount brokerage pioneer have rallied more than 15% year-to-date, buoyed by the rally in stocks since the calendar flipped over. E*Trade currently has a huge P/E ratio of 35.7, but back out its cash position and that number drops down to just 2.46. Why the big difference?

A big part of it has to do with how E*Trade has realigned itself post-2008. The firm has been putting effort into building out its banking business, an operation that complements its retail brokerage business nicely. Banking offers cheap access to capital as well as attractive fee-based revenue streams, and it also provides stellar cross-selling opportunities with E*Trade's legacy brokerage business. Rallies are a goldmine for brokerage firms, as enticed investors ratchet up their trading (and their commissions, in kind). That's a big tailwind that bodes well for ETFC right now.

E*Trade sports a strong balance sheet -- a nice change from the bloodbath that was 2008 for this company. With a more robust financial position coming in 2013, ETFC is better prepared to weather a few bumps in the road this time around. And its bargain valuation isn't going to last forever.

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