Amerivest Portfolios Could Attract New Customers, Lift Stock

Shutterstock photo

Ameritrade ( AMTD ) has been trying to attract retail investors with higher income by providing solutions and services that can be customized to the requirements of a particular investor. Initiatives aimed at bringing in new investors with more money to spend could give the company an edge over competitors like E-Trade ( ETFC ), Charles Schwab ( SCHW ), Wells Fargo ( WFC ) and Bank of America ( BAC ).

Ameritrade's biggest focus seems to be on making its registered investment advisor (RIA) channel strong, so that more affluent retail investors can get investment advice tailored to their requirements (see Can RIAs Provide a Lift for Ameritrade? ). And Ameritrade's recent launch of new Amerivest exchange-traded fund (ETF) portfolios looks like an attempt to attract those investors that have a bit of money to invest, but prefer not to pay for individual investment advice.

Our price estimate for Ameritrade is $22.65 , roughly 5% above the stock's current market price.

What is Ameritrade Offering with the New Amerivest ETF Portfolios?

The newly launched Amerivest portfolios were added by Ameritrade with assistance from Morningstar Associates, an independent, third-party investment consulting firm. The 5 new portfolios (aptly named Conservative, Stable, Balanced, Growth and Aggressive Growth) capture an individual's investment goals and appetite for risk.

Each portfolio consists of a different mix of domestic (U.S.) equities, international equities, fixed income investments, alternative investments (real-estate and commodities) and cash. Clearly, portfolios with higher expected returns would have higher associated volatility and hence higher risk. And the investor is free to pick the portfolio most suitable to his/her individual need.

But Will this Really Help Ameritrade?

Online brokerage firms have been competing fiercely on commissions & fees, types of investment products offered, research & advice for investors, and customer service. And due to very little differentiation among the incumbents, each of them has had to focus on new offerings to gain an edge over the others.

Given that nearly two-thirds of Ameritrade's customers are retail investors, with institutional investors making up the balance, the importance of retaining retail investors cannot be over-emphasized.

To illustrate the impact to Ameritrade's stock value from adding new retail investors, we estimate that if Ameritrade manages to grow the number of active brokerage accounts at 7.5% annually (the average growth rate over the last 3 years), it would have more than 13 million active accounts by the end of our forecast period. This would represent an 8% upside to our $22.65 price estimate, pushing our number above $24.50.

You can test this scenario, and others, by dragging the trend line in the interactive chart above.

See our full analysis and $22.65 price estimate for Ameritrade

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Symbols: AMTD , BAC , ETFC , SCHW , WFC

More from Trefis




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by