In this piece, I used TipRanks’ comparison tool to evaluate two capital markets stocks, Charles Schwab (NYSE:SCHW) and Tradeweb Markets (NASDAQ:TW), to determine which is better. Upon closer analysis, it looks like SCHW stock is more promising.
Charles Schwab is a financial services company that offers asset management, discount brokerage, advisory services, and banking. On the other hand, Tradeweb offers trading on fixed-income products, exchange-traded funds, and derivatives via its electronic over-the-counter marketplaces.
Additionally, Schwab’s size dwarfs that of Tradeweb, with the former raking in $20.8 billion in revenue for 2022, versus the latter’s $1.2 billion. Of course, while both stocks offer trading venues, they cover different corners of the capital markets.
A look at the charts of these two stocks reveals different trends, at least in the past few months.
Schwab has plummeted year-to-date, falling more than 30%, while Tradeweb is up ~20%. Over the last 12 months, Schwab is down 37%, while Tradeweb is down 11%. This diversion has resulted in wildly different valuation multiples, making SCHW more attractive in that sense.
Charles Schwab (NYSE:SCHW)
With shares of Charles Schwab down so much year-to-date, the stock is worth a look. On the one hand, the company has sold off due to concerns about the collapses in the banking sector. However, the sudden influx of purchases by insiders over the last two weeks, plus the low valuation multiples, suggest a bullish view might be appropriate for Charles Schwab over the long term.
The capital markets industry is trading at a price-to-earnings (P/E) ratio of 22.2 times, higher than its three-year average of 19.4. Based on this number, Charles Schwab is decently discounted at a P/E of 15.3. Over the last five years, the firm’s average P/E has been about 22.8, also suggesting it may be cheap.
Notably, insiders have been buying the dip in Charles Schwab shares over the last two weeks, gobbling up more than $7.3 million worth of shares in “Informative Buys.” In fact, CEO Walter Bettinger and director Stephen Ellis each bought more than $2 million worth of Schwab shares in a single transaction.
Bettinger said recently that the firm has plenty of liquidity to cover a run on its deposits. In the worst-case scenario, it could borrow from the Federal Home Loan Bank or issue certificates of deposit.
As the largest publicly traded brokerage in the U.S., Schwab is sensitive to fluctuations in interest rates. In fact, reports noted a potential problem with long-dated, low-yield bonds acquired in 2020 and 2021, resulting in sizable paper losses due to the rising interest rates.
However, while customers are seeking higher-yielding alternatives to those bonds, the fears of a collapse appear to be overblown. In its February activity update, Schwab reported $41.7 billion in core net new assets by new and existing clients.
Although total client assets declined 4% year-over-year and 1% month-over-month, the firm emphasized that most of its outflows reflect clients reallocating “into higher-yielding cash alternatives within Schwab.”
What is the Price Target for SCHW Stock?
Charles Schwab has a Moderate Buy consensus rating based on 14 Buys, three Holds, and one Sell rating assigned over the last three months. At $83.40, the average Charles Schwab stock price target implies upside potential of 49.85%.
Tradeweb Markets (NASDAQ:TW)
On the surface, Tradeweb Markets looks overvalued with its P/E of about 50.6 times, but the market may be assigning fintech and growth-related premiums to the company. In fact, the company’s average P/E over the last five years is about 72 times. However, Tradeweb’s revenue growth is slow relative to that of other growth companies, suggesting a neutral view might be appropriate.
Additionally, just seven days ago, CEO William Hult sold almost $2.9 million worth of shares, suggesting the stock may be fully valued.
However, Tradeweb continues to see robust activity, so it may be a solid long-term play. For February, it reported $27.4 trillion in total trading volume and a record average daily volume of $1.4 trillion, a 21.5% year-over-year increase.
What is the Price Target for TW Stock?
Tradeweb Markets has a Strong Buy consensus rating based on six Buys, two Holds, and zero Sell ratings assigned over the last three months. At $81.43, the average Tradeweb Markets stock price target implies upside potential of 4.28%.
Conclusion: Bullish on SCHW, Neutral on TW
Over the long term, neither Schwab nor Tradeweb look like bad plays. However, in the near term, Schwab looks like the better option. The fears about a deposit run appear to be overblown, but the sell-off could present a sizable buy-the-dip opportunity.
