Amidst the current turmoil in the financial markets, The Charles Schwab Corporation (NYSE:SCHW) is a unique investment opportunity at a discounted valuation, according to a recent article by Seeking Alpha contributor Gorodenkoff. As a diversified, multi-national financial services company, Schwab boasts a huge client asset base, reaffirmed liquidity position and an attractive valuation due to a 30% drop in stock price since March 8th. While the recent shutdown of Silicon Valley Bank has led to growing concerns about the liquidity and deposit side of Schwab’s business, the author believes the brokerage has ample liquidity to fund any outflows that may occur. Additionally, the recent purchases of shares by directors and officers at Schwab provide a demonstration of confidence in the company’s financial franchise. With a strong brand name and solid liquidity position, Schwab could revalue to the upside sooner than investors think.
Important Details about Charles Schwab: This Is A Unique Opportunity To Be Greedy (NYSE:SCHW) –
– Charles Schwab offers a unique investment opportunity at a discounted valuation.
– The company is a diversified, multi-national financial services firm with a huge client asset base and a strong (reaffirmed) liquidity position.
– Charles Schwab’s stock price has declined almost 30% since March 8, 2023, but the company has a solid liquidity position and is not at risk.
– The shutdown of Silicon Valley Bank has changed investors’ focus on the liquidity side of Charles Schwab’s business, but the brokerage has ample liquidity to fund any outflows that may occur.
– A number of directors and officers at Charles Schwab, including the company’s CEO, took advantage of the price drop this week and purchased 81,757 shares of the financial services company, demonstrating confidence in the company.
– Charles Schwab’s shares are currently valued at a P/B ratio of 3.7 X and a P/E ratio of 10.4 X, and the company has a strong brand name and a solid liquidity position to navigate difficult financial markets.
– Investors can take advantage of the turmoil in the financial market and buy Charles Schwab shares at a discounted valuation, which could revalue to the upside sooner than investors think.
Gorodenkoff: A Unique Investment Opportunity in Charles Schwab
The current situation in the financial markets has created a unique investment opportunity that investors can take advantage of. One of the companies that I believe offers significant upside potential is The Charles Schwab Corporation (NYSE:SCHW).
Charles Schwab is a diversified, multi-national financial services company with a huge client asset base, a strong liquidity position, and an attractive valuation on the drop. The company’s stock price has declined almost 30% since March 8, 2023, in the wake of a couple of bank failures that have rattled investors. However, I believe that Schwab has a very solid liquidity position and is not at risk, and it’s time to buy the fear!
The SVB Shutdown: Opportunity for Investors
The context of Silicon Valley Bank’s failure has been addressed in multiple places now, and most readers will be well aware of the chain of events that has been set in motion by the SVB Financial Group (SIVB) shutdown last week. The only thing that investors need to know is that the Fed effectively provided a deposit backstop guarantee last weekend with its Bank Term Funding Program. This program allows financial institutions to pledge U.S. Treasuries and other assets such as mortgage-backed assets, as collateral for short-term cash to fund deposit withdrawals.
Despite the liquidity concerns that have arisen due to the SVB shutdown, Charles Schwab’s core business fundamentals remain strong. The company had more than $7T in assets at the end of FY 2022 and has seen a surge in customer deposits, client assets, revenues, and net income in the last five years, in part aided by the Fed’s easy money policies. Charles Schwab achieved record revenues and net income in FY 2022, just before the shutdown of Silicon Valley Bank caused new stress in the financial system.
Charles Schwab’s Key Metrics All Point in the Right Direction
Charles Schwab’s key metrics all point in the right direction. The brokerage firm has consistently been able to attract new client assets over time, growing its net new assets at a rate of between 5% and 7% annually. In FY 2022, Charles Schwab received $428B in net new assets, mostly from its existing client base. This strength in deposit/asset gathering is a major asset for Charles Schwab during times of crisis.
Furthermore, a number of directors and officers at Charles Schwab, including the company’s CEO, have bought shares of the financial services company during the recent drop in price. This is a demonstration of confidence by management, and it provides some reassurance to investors during times of heightened volatility.
Valuation: Fear Discount
The panic that has taken over the pricing of financial stocks in recent days has created an opportunity for investors to buy strong financial institutions at discounted prices. Charles Schwab’s shares are currently valued at a P/B ratio of 3.7 X and a P/E ratio of 10.4 X. Other brokerage firms have also seen large valuation draw-downs this week, including Interactive Brokers Group (IBKR). At just 10 X forward earnings, I believe that investors are getting a really good deal considering Charles Schwab’s strong business trends before last week’s catalyst event.
Risks with Schwab
If more banks fail and stress levels in the financial industry rise, then the market situation may get a whole lot worse, at least in the short term. However, I believe that Charles Schwab has a very strong financial franchise and has demonstrated its ability to attract new assets. It would take a complete financial panic and huge deposit outflows for me to change my mind about the company.
Final Thoughts
The current market conditions have created a unique investment opportunity in Charles Schwab. The company has demonstrated over time that it can attract a significant amount of new client assets, has a strong brand name, and a solid liquidity position that should help it navigate a difficult and unstable market. Charles Schwab’s shares are surely not expensive at a P/E ratio of 10 X. With $100B in liquidity from various sources and the Fed supporting the market with a cash facility to stem the outflow of deposits, Charles Schwab could revalue to the upside sooner than investors think.