With the market action improving dramatically today, I decided to build my long exposure a bit by buying a small position in options-focused discount broker optionsXpress Holdings (OXPS).
Here’s why:
1) Consolidation – the discount brokerage industry continues to consolidate, and optionsXpress is one of the only decent-sized independent firms out there available to buy. TD Ameritrade (AMTD) is in the process of buying thinkorswim (SWIM), whose options-based business model is fairly similar to that of OXPS.
2) Balance Sheet – unlike the big financial names like Merrill Lynch (MER) or Citigroup (C), OXPS has a clean and easy-to-understand balance sheet. And they're liquid, with about $3.50 a share in cash and no long-term debt. That’s pretty nice for a stock trading hands at $9 and change. That 3.2% dividend yield is safe.
3) Valuation – OXPS is trading at an extremely cheap valuation of 6 times trailing earnings, and 9 times expected full-year earnings, a great bargain considering the huge cash position. This is a stock that can easily trade up to 15 to 20 times earnings in a bull market. We’re still in bear-market territory, but OXPS is staying profitable and growing its book value which will keep the stock getting nailed too hard.
It’s tricky to have a timeline longer than 5 minutes in this zany environment, but there will be winning financial stocks going if you look out 6 to 12 months. OXPS isn’t nearly as exciting as the Financial Bull 3X ETF (FAS), but I’m confident that OXPS is a winner.
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