Banking, finance, and taxes

With Midterms Over, Deutsche Bank Loves 3 Top Financial Stocks

Lee Jackson

Published: November 7, 2018 7:00 am

Last Updated: January 11, 2020 3:16 pm

Regardless of which party or candidates you voted for, if you are like many Americans, you are just glad the whole thing is over. The constant bombardment of rhetoric and TV ads tends made most of us somewhat numb. The good news for investors is that typically, the markets perform well after midterm elections, and this year should be no exception.

In a new research report, Deutsche Bank not only sees the potential for the post-midterm run, it also notes the recent heavy selling the markets experienced in October as another positive. It’s comforting to note that historically, the S&P 500 has gained nearly 11% on average from the October low close, which was on the 29th, until the end of the year, and it has been higher every single time since 1950.

Deutsche Bank is very positive on the online brokers and noted this in the report:

After examining subsector stock price performance in S&P 500 rebounds following corrections in 2015, 2016 & 2018, we see the online broker stocks as being best positioned to rally, and the group is our tactical favorite over the next 4-8 weeks, especially if bond yields and Fed hike expectations improve.

Three stocks are favorites, and all are rated Buy at Deutsche Bank.

TD Ameritrade

This is one of the leading e-brokers, as well as a top pick at Deutsche Bank. TD Ameritrade Holding Corp. (NYSE: AMTD) is a leading online brokerage and financial service firm that offers clients trading, investment and advice solutions.

The firm was founded in 1975 to provide investors with a cost-efficient or discount and online brokerage offering, which has driven its success. Online trading expanded to cash management, which has expanded to branches (100+), investment products and its registered investment advisor offering.

Deutsche Bank is bullish on the possibility of strong retail trading volume, and this is the premier pick in the industry. Despite the strong competition in the discount arena, the company has outstanding growth possibilities. The report said this:

We continue to favor TD Ameritrade and view the stock as offering the best growth profile this upcoming year (17% EPS growth in calendar 2019 estimated versus 2018 estimated. Benefiting from high incremental yields from fixed maturity bank deposit rolloff, strong trading activity, solid client organic growth, and best-in-class positive operating leverage and earnings per share growth.

Shareholders receive a 2.30% dividend. The Deutsche Bank price objective for the shares is $73, and the Wall Street consensus target is $63.30. Shares closed trading on Tuesday at $52.21.

E*Trade Financial

This is another top discount brokerage firm, and it could be offering investors a solid entry point here. E*Trade Financial Corp. (NASDAQ: ETFC) is a financial services firm that offers competitively priced brokerage, investing and banking solutions to individuals. The firm has expanded its brokerage and trading offering to banking products, via E*Trade Bank, and investing products and solutions.

E*Trade offers its services online, at branches and through its network of representatives, investment professionals and advisors. The firm has grown organically and via acquisitions throughout its history. The potential for a year-end rising market could be a huge boon for the company and investors.

The analysts said this in the report:

The company expects revenue per trade between $7.10-$7.20 for remainder of fiscal year 2018. Expects yield on third party cash of 1.5% in the fourth quarter. Double digit growth in pre-tax income. Revenue growth of 3.5% to 4% more than expenses. Average reinvestment yield of 3.% to 3.2%. Expects securities gains of $5 million to $10 million per quarter.

Investors receive a 1.07% dividend. Deutsche Bank has a $59 price target, and the consensus target is $52.77. Shares closed Tuesday at 52.41.

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Charles Schwab

The iconic discount broker has rebounded nicely from a big October plunge. Charles Schwab Corp. (NYSE: SCHW) is a leading provider of brokerage, banking and investment-related services to consumers and businesses. It has two business segments: 1) Investor Services, which provides retail brokerage, banking, advice and other financial services, and 2) Institutional Services, which provides business to business services to independent investment advisors, and to company benefit plan sponsors.

The company reported a solid quarter in October, with results right in line with the Wall Street estimates, as well as strong net interest revenue and trading and well-controlled expenses. The analysts like the potential for strong growth going forward.

Shareholders receive a 1.09% dividend. The $54 Deutsche Bank price target is less than and the $56.63 consensus figure. The stock closed at $47.76.

There was a time when Wall Street and investors scoffed at the discount brokers, but not anymore, as many private and institutional investors use their services daily. These stocks look like solid picks into the year-end, and all offer a relatively benign risk profile.