Etrade: Deep value long term play?

Discussion in 'Stocks' started by matgallis, Jul 14, 2008.

  1. I've been looking for deep value equity securities which have been oversold in the mediate term but have long-term potential for monstrous returns. I realize this type of attitude towards value investing is difficult, as risk-reward are about the same.

    However, my research brought me to e*trade equity, not the common but the preferred. I purchased a small amount, as the risk is large considering the ample amount of unknown risk although they stated they still have 1 billion of excess-risk assets and future cash flows are limited by write-offs and interest payments to senior notes.

    Well lately the common and preferred have sold off considerably. I am already sitting at a unrealized loss, however my overall strategy for this purchase was to hold the preferred until maturity where it converts to common at a rate of 1.144 and furthermore continue a DRIP program until then. The preferred pays a $0.39 dividend per quarter until maturity in December 2018. My research led me to believe e*trade has limited cash flow, but enough to support these payments well into the future where their non-core business segments should improve.

    However, what my research failed to find was E*trade long term notes purchased by Citadel Investment Group @ 12.5% interest that mature almost exactly one year before the preferred equity converts to common. there are also 3 other senior notes which all mature before Citadels investment and the preferred equity.

    My concern is my lack of knowledge and history with preferred investments. I know e*trade does not have to fulfill their obligation to pay the quarterly dividend, however I know if they stop the dividend payments they must back-pay all dividend payments if they wish to continue paying dividends in the future. I'm slightly concerned they might just stopped the payments and never plan to continue them and just wait until they mature and convert at a cheaper price (common is worth almost 50% less). Furthermore, if the 12.5% notes are due at 1.9 billion, is it likely e*trade won't be able to fulfill this obligation and my long term investment goes sour a year before conversion?

    is this likely? I've found it's pretty rare for preferred equity to not be paid dividends and if they stop the payments the firm is in deep shit, but at maturity are preferred payments from past miss payments required assuming the company doesn't fold?

    Thoughts, opinions and suggestions are welcome.
  2. ETFC is halted @ IB right now (4:26 ET) ... that doesn't seem like a good sign. Hope you're not long.

    Edit: of course this probably means nothing for the stock long term, but still - I might wait for some signs of life before trying to call a bottom. If you're looking to get into financials for long term, consider building a position in UYG.
  3. E*Trade is selling off assets
  4. NoDoji


    Halted over the pending news just released - they're selling E*Trade Canada.
  5. May someone please answer my questions about the preferred equity?

    The sell is... good?
  6. It would be a fun play. 1000 shares. Worst case you lose it but then you can declare it and deny unclesam some of your gains :)
  7. AAA30


    Do you really have the prefereds or are they the equity units?
  8. etfcp is the ticker
  9. the perferred is making a move lately... going ex-dividend in about a week. I'm considering taking the capital gains before ex-dividend and repurchasing when it dips hard...
  10. wash rinse repeat, I unloaded my play at 3:45

    IT was a fun gamble and paid off. I only played 1K shares though not a big deal but it did pay.
    #10     Jul 22, 2008