The report, along with previous studies that note the strong trading volume at many online brokers, sent stocks in the sector marginally higher in midday trading today.
"Last year, January was the best month of the year for online brokers as far as stock appreciation," said Richard Repetto, the analyst at Lehman Brothers who wrote the report released today. During that month, Ameritrade's and E*Trade's stock prices respectively climbed 155 percent and 96 percent.
Added Repetto: "While some of the rise may be seasonal, combined with a strong quarter and a potential for strong earnings, there are a lot of factors favorable to online brokers this quarter."
Shares in online brokers are trading well below their highs of last spring: DLJDirect is at 14, down from 45.63; Charles Schwab is at 36, down from 77.50; E*Trade is at 29, down from 72.25; and Ameritrade is at 23, down from 62.80
In his report, Repetto said that Schwab also is likely to give the sector a boost after the largest online broker last week said earnings would be 2 cents to 3 cents above analysts' consensus.
"Despite these results, Ameritrade and E*Trade both traded down during the month of December," Repetto wrote.
Lehman Brothers also lowered its loss estimates for Ameritrade and DLJDirect by one penny per share to a loss of 12 cents a share and 6 cents a share, respectively.
Repetto noted that the Nasdaq's daily average volume increased nearly 31 percent in the last quarter, while volume on the New York Stock Exchange rose about 20 percent.
"We believe this bodes well for the online brokers, Ameritrade [and] E*Trade, whose trading results should reflect the stronger increase in Nasdaq volumes over NYSE stocks as compared to Schwab's more conservative client base," wrote Repetto.
Hambrecht & Quist Group analyst Greg Smith said in a research note yesterday that online investors tend to trade Nasdaq stocks more heavily--especially those that are Internet-related.
While online brokerage stock could get a short-term pop from the increase in volume, Repetto said he remains concerned over "increasing acquisition costs, heavy marketing spending and heightened levels of competition."