Dip buyers should be on high alert for Charles Schwab (NYSE:SCHW) stock, as I believe there’s a now-or-never opportunity staring you right in the face. I am bullish on SCHW stock as the company posted reasonably good results during a tumultuous time for the U.S. banking sector.
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Charles Schwab (commonly known as just “Schwab”) is a financial services company that runs a popular brokerage but also offers banking and lending services. For many years, Schwab was generally regarded as a safe place to park one’s money.
Yet, nothing seemed safe during the first quarter of this year, especially in March. That’s when SVB Financial and Signature Bank failed, and the fear of banking-collapse contagion caused SCHW stock to quickly lose value. Yet, out of the ashes of panic, we can find excellent buying opportunities, so get ready to flex your contrarian muscles with a reliable name in American finance.
Charles Schwab Can Weather the Storm
“As storms come, storms also go.” That’s a quote from Walt Bettinger, chief executive of Charles Schwab. Of course, it’s a reference to the recent turmoil involving U.S. bank failures. The quote is also a timely reminder to contrarian investors of all stripes.
Perhaps one big-money investor should pay attention to Bettinger’s wise words – or maybe, it’s too late now. Reportedly, GQG Partners sold a $1.4 billion position in Schwab last month, just as peak panic had set into the banking sector. Personally, I consider this move to be a mistake — the complete opposite of what a true contrarian investor would do.
Now that Schwab has released its first-quarter 2023 results, GQG Partners might regret the decision to bail on SCHW stock. For one thing, any former investor who panic sold will miss out on Schwab’s dividend, which the company raised by 14% to $0.25 per share.
Besides, the panic sellers will end up abandoning Schwab even though its customers stuck with the company. If you’re assuming that Schwab’s clients took flight during the first quarter, think again. In actuality, the company added over 1 million new brokerage accounts during those three months.
Furthermore, if you’re worried that Charles Schwab might fall into the same category as SVB Financial and Signature Bank, you should note that Schwab didn’t over-leverage itself on government bonds or cryptocurrencies and that the company has been profitable for a very long time.
Charles Schwab’s Deposit Outflows Were Fully Expected
Granted, the critics will point to Schwab’s deposit outflows, which were due to customers moving their funds out of cash and into high-yielding assets such as money-market funds. However, by the time Charles Schwab reported its quarterly stats, the market had fully anticipated the impact of the deposit outflows.
CFO Peter Crawford admitted that Schwab’s “bank deposits shrank by 11% versus the prior year-end.” Yet, contrarian investors should understand that this isn’t horrendous, and some deposits should come back to Schwab when interest rates come back down. All in all, Charles Schwab’s earnings results were “not as ugly as feared,” to borrow a phrase from UBS (NYSE:UBS) analyst Brennan Hawken.
During a time of elevated inflation and fears of bank runs, Schwab managed to generate Q1-2023 revenue of $5.1 billion, up 10% year-over-year. Not only that, but the company reported net income of $1.6 billion, up 14% compared to the year-earlier quarter. On a per-share basis, analysts anticipated that Schwab would report quarterly earnings of $0.90, but the actual result was $0.93.
Is SCHW Stock a Buy, According to Analysts?
Turning to Wall Street, SCHW comes in as a Moderate Buy based on 12 Buys, four Holds, and one Sell rating. The average Charles Schwab stock price target is $74.83, implying 41.8% upside potential.
The Takeaway
Even during a period of upheaval in the banking sector, Charles Schwab is raising its dividend payouts and adding brokerage accounts. Moreover, Schwab is posting top- and bottom-line quarterly beats, which should encourage investors and frustrate short-sellers.
For value investors, I believe this is a bright green light to make a move on SCHW stock and that you won’t get an all-clear signal like this very often in the markets. Schwab is not the same as SVB Financial and Signature Bank. It’s a solid lender and brokerage with a sterling reputation and solid results. Therefore, I invite you to send a thank-you card to the panic sellers and to consider Charles Schwab stock.
