TD Ameritrade Holding Corp. (AMTD), Charles Schwab Corp (SCHW): What’s Up With This Duo?

Exposure to asset management makes Charles Schwab Corp (NYSE:SCHW) a relatively “safer” bet on higher stock prices. Seeing as the company generates income as a percentage of assets under management, higher asst prices beget more fee income. Higher asset prices also tend to boost the company’s brokerage and transaction fee business.

Charles Schwab owns OptionsXpress, one of the most trusted and preferred brokerage services for option traders. This presents an opportunity for growth in capitalizing on a customer that has never been core to Charles Schwab Corp (NYSE:SCHW)’s asset management business.

The company trades at 21 times forward earnings estimates, which is rich given its reliance on interest rate policy to generate net interest margin.

Going long on brokerage firms

Brokerage firms have significantly more exposure to higher interest rates than they do transactions. Investors who want exposure to the capital markets would do better to invest in big-scale transactions: the buying and selling of businesses by businesses. Here’s 3 investments that capitalize on mergers and acquisitions.

Retail may be back, but until the market offers brokerage firms a bigger spread on margin accounts, the business simply isn’t particularly attractive. TD Ameritrade Holding Corp. (NYSE:AMTD) makes for the most compelling pick in the space, but investors should wait for the company to take a haircut – 18 times forward earnings is a high price to pay for a slow-grower with a binary catalyst in higher interest rates.

The article Retail Is Back: Buy the Brokers? originally appeared on Fool.com and is written by Jordan Wathen.

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