Etrade (ETFC) looks like a compelling buy on weakness today. I would favor a gradual scale into a position move as the stock could still go lower.

The gambit here is that ETFC stock was unfairly punished on the news that Charles Schwab is buying TD Ameritrade.

With the flurry of so called ‘free’ apps that allow for very low cost trading, the idea is that online brokerage firms that specialize in online trading are going to get hit hard, forcing consolidations within the industry in order to survive.

Folks, I don’t think it’s that bad. Brokerage firms like ETFC discovered ways of making money beyond just brokerage fees from retail traders many years ago. For example, check out Etrade’s awesome revenue growth.

If Etrade was hurting so bad from lowering fees, why didn’t its revenue really start to drop a couple of quarters ago when fees started dropping?

In fact, ETFC’s Profit Margin of 35.79% is among the best returns in the industry. ETFC outperforms 91% of its industry peers. The industry average Profit Margin is 27.46%.

Buyout of Etrade

I think Etrade is an attractive acquisition by another big, Charles Schwab like player like Morgan Stanley or Goldman Sachs.

Fox Business Network’s Charles Gasparino tweeted: “Investment bankers say internal discussions grow at @GoldmanSachs about possible deals including @etrade @usbank as it expands into retail bank space; bankers expect more mergers in the financial sector as firms seek size, cost savings.”

finviz dynamic chart for  ETFC