Rating | Price | Catalyst | Date |
Buy | $51.91 | Oversold | 18 March 2023 |
Key Metrics
P/E | ROE | Price target | |
10x fwd earnings | 19% | $80 |
The most obvious opportunity to us today is Charles Schwab (SCHW) which fell ~11.55% today and as low as $45 per share intraday. Schwab makes money on the spread between the low rate it pays customers for cash they hold in their accounts and the rate it can earn investing that cash. Schwab’s earnings per share grew 20% last year, to $3.90. Schwab’s “money market” rate has crept up to ~4.48% – it isn’t earning as much of a spread but because its portfolio of fixed-interest rate securities is laddered its losses from low-yielding securities are quite low. The company has $36.6 billion of shareholder’s equity and a tier one leverage ratio of 7.2% (the regulatory minimum is 4%). As long as Schwab holds its lower-interest rate securities until maturity they should be fine and not incur a loss. Schwab’s core business – brokerage and wealth management – remains strong. Last year 4 million brokerage accounts were opened in the US. It trades at 10x fwd earnings, trades at ~$51.91 (down 36.75% YTD), and earns a very good 19% return on equity. Moreover, we think it has a strong franchise and a “wide moat”: it’s a chance to buy quality for less.