E*Trade Financial Corporation (NYSE: ETFC) shares rose today after insiders revealed a sharp increase in their holdings of the troubled online brokerage. The stock is more than 80% off of its highs primarily as a result of its subprime exposure, which led to speculation that it may be forced to shut its doors. In reality, the brokerage had plenty of liquidity and no real problems with its portfolio other than a write-down. Unfortunately, the speculation itself led to a very real exodus of its clients to supposedly “safer” brokers. The company has since unleashed an impressive turnaround that has many market participants bullish on the stock - including insiders!

E*Trade insiders began accumulating shares at an impressive rate. Ten insiders, including its chairman and acting chief executive, purchased 474,761 shares in the company last week alone. Notably, seven of these insiders made the purchases through open market transactions - that is, they purchased stock like anyone else with their own cash. The bulk of the recent purchases came after the company announced its turnaround plan, indicating a strong internal confidence in the plan they’ve laid out for the franchise. And so far, things seem to be paying off as shares have made a slight recovery off of their lows.

E*Trade’s turnaround plan hinges on its ability to regain customer confidence. The brokerage ran its annual superbowl ad this year to inspire such confidence, proclaiming that it is opening 1,000 new accounts daily. The fact that so many new customers are arriving and that they could afford that superbowl ad may be just what people need. In the end, its the clients that make the company, and if they can hit their targets, then there shouldn’t be any problems ahead. Institutions have also begun to buy into the turnaround as Maybach Financial added the company to their watchlist, and many more are sure to follow.

These factors make E*Trade a compelling buy at these levels. The brokerage has a book value of $6.13 per share while trading at only around $5.00 per share! Moreover, if we assign an industry multiple to this company (assuming it can turn itself around), we’d find a low end valuation of around $10.00 per share - roughly double where it is now! Opportunities like this one are found in companies that were beaten down on fear where very little was affected fundamentally. This has made the stock a compelling fundamental play for many investors at these levels.

In the end, if E*Trade can regain its customer base, then it is essentially right back where it started but for a lot cheaper than the write-down warranted. Insider buying is indicating that many are confident in a turnaround while 1,000 new accounts per day is certainly a point worth considering. Combined, these factors make ETFC a stock worth watching closely!

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