Saturday, July 30, 2011
Trefis Now Available on E*Trade
Customers can tap into the novel research service that updates stock valuations based on changes in revenues and earnings. Plus, hedge fund Citadel turns up the heat on E*Trade management.
Investors who analyze fundamentals, by poring over a company’s balance sheet and income statement for clues to changes in its stock valuation, should take a look at Trefis. The firm provides a quick view of what a company does to earn its money, and whether it’s worth its current price.
Trefis (http://www.trefis.com) opened in 2010, and this month has partnered with E*Trade (http://www.etrade.com), integrating its basic service into the online broker’s Website. Christopher Larkin, a senior vice president of retail trading and client services at E*Trade, says, “Trefis is going to help our customers understand how a company’s product impacts the stock price.” Larkin says E*Trade emphasizes the importance of understanding the drivers of a stock price, and believes that Trefis (see “DIY Value Analysis,” Aug. 16, 2010) is a great educational resource.
Trefis tracks technology, media, telecom, consumer, retail, automotive, financial services and energy companies, and plans to expand to other industries such as pharmaceuticals, biotechnology and industrials. It also intends to cover companies listed on non-U.S. exchanges. It currently models the stock prices of 187 U.S. companies.
A Trefis-generated graphic will appear in the right-hand column of the display when an E*Trade customer looks at a company the research outfit covers. This snapshot also shows some fundamental data, a small chart, and news headlines for the stock.
Larkin says, “Customers are demanding more ways to interact with data, and we think Trefis did a good job from a visual standpoint.” If, for example, you want a quote for Apple (ticker: AAPL), Trefis’ graphic displays the stock price its model calculates, along with the percentage that each of the firm’s product lines contributes to that price. For Apple, Trefis estimates a stock value of $510 per share, which is about 32% higher than last Wednesday’s close. Its model calculates that almost 54% of Apple’s market value is driven by iPhone sales, and about 12% from the iPad.
The model components, developed by a team of MIT Sloan School of Management grads, can be explored by clicking on the graphic and playing around with the assumptions that have been built in by Trefis analysts. You can change price and marketshare forecasts for product lines, and see how that affects the stock-price estimate.
The Trefis share price is a combination of forecasts for a company’s products and other revenue sources. The forecasts calculate future revenues, costs and cash profits, the latter of which is discounted to the present using common Wall Street valuation methodologies.
Trefis updates its models at least every quarter, when earnings are announced, and revises its thinking along the way. It also updates whenever there is a meaningful event, such as a merger, acquisition, divestiture or product launch.
You can access this information from Trefis’ Website if you aren’t an E*Trade customer; a basic membership is free. In addition, you can play with the model on E*Trade’s Website without logging in.
As a data junkie and student of econometrics, I had a great time experimenting with the Trefis forecasting models. They’re very interactive and can help an investor who might not have the time to slice and dice annual reports and Securities and Exchange Commission filings to get a look under the hood of publicly traded firms.
If you want more, including access to the Trefis community so you can trade modeling ideas and see what others are predicting, you can subscribe to Trefis Pro for $14.95 per month, or $149 per year. There is a free two-week trial available for the Pro service, although you do have to enter your credit-card number to qualify.
E*TRADE IN PLAY? The online broker last week got attention for other reasons. Chicago hedge-fund Citadel, which owns nearly 10% of E*Trade Financial (ETFC), disclosed it was unhappy with the firm’s performance and management, and would like it to consider selling itself, among other options.
DO IT YOURSELF: TradeKing just launched TradeKing API, a set of technical-programming instructions that allows you to write your own trading application, or app, that ties into your account. It can also bring in applications and Websites from other developers to customize the appearance and functionality of your brokerage experience.
While an API (application-programming interface) allows you to create your own system, it’s more likely that developers and technology partners will create apps that can customize your trading environment. TradeKing refers to the launch as “a whole new avenue to deliver greater choice for the firm’s more than 250,000 clients,” but it’s also a way to bring data and content to the customers who want it.
Most third-party applications that tie into other brokers (among them E*Trade, Interactive Brokers, MB Trading, TradeStation, TD Ameritrade and OptionsHouse—see “Here Come the Third-Party Apps,” Aug. 9, 2010) require an additional fee. For instance, trading-automation service CoolTrade (http://www.cool-trade.com), which can execute trades via all brokers mentioned here, costs $3,990 per year for a subscription.
LIGHTSPEED BUYS SOME OPTIONS: Lightspeed Financial, which focuses on professional retail traders and institutions, has expanded its options-trading technology by buying Chicago-based Greenmoor Financial Group. Greenmoor (http://www.gfgtrading.com) publishes Green Trader, its proprietary front-end trading technology. The system includes an order-execution and management module that provides both simple and complex option execution. The Green Trader suite also includes tools that assist customers in identifying trading opportunities using client-specific parameters. Its Trading Opportunities Software, or TOS, includes algorithms that can identify market movers and changing market conditions.
Lightspeed (http://www.lightspeed.com) will offer the Green Trader front-end to clients, and also acquire Greenmoor’s registered broker-dealer business, Greenmoor Financial. Lightspeed mostly focuses on trading stocks, but CEO Stephen Ehrlich recognizes the opportunity to boost his customers’ options-trading. Ehrlich says: “Our existing customers are increasingly turning to this burgeoning asset class to enhance their trading strategies—whether it’s to hedge a position or to generate income. As such, we are committed to expanding our footprint in this important segment of the market.”
Published in Barron’s, July 25, 2011