7) The Charles Schwab Corporation (NYSE:SCHW)
Average Upside Potential: ~16.9%
Forward P/E as of February 28: ~19.1x
Number of Hedge Fund Holders: 91
The Charles Schwab Corporation (NYSE:SCHW) operates as a savings and loan holding company offering wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. The company, which enjoys a wide economic moat, is expected to tackle competitive pressures and still earn above its cost of capital because of its massive scale and industry-leading cost efficiency, says Morningstar. TD Cowen upped the company’s stock to “Buy” from “Hold” with a price target of $103, an increase from $88.
The Charles Schwab Corporation (NYSE:SCHW) is well-placed to improve its fundamentals, reduce the risk of earnings disappointment and drive disproportionate EPS growth as compared to the market. The company’s ability to provide low-cost products and services can be further enhanced with scale, which can result in attracting customers and maintaining profitability. Therefore, with the help of increased scale, The Charles Schwab Corporation (NYSE:SCHW) can reduce its costs, innovate technology, diversify offerings and capture new customer bases.
Baron Funds, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Brokerage firm The Charles Schwab Corporation (NYSE:SCHW) contributed to performance after a strong quarterly earnings report. Most notably, client cash levels appeared to be stabilizing at Schwab and across the broader industry after a two-year drawdown caused by interest rate hikes and robust equity markets, both of which pulled idle cash off the sidelines and into investments, creating a headwind to Schwab’s net interest income. This cash stabilization should allow Schwab to continue paying down its short-term borrowings, which, in turn, should lead to an increase in net interest income and earnings. The company also participated in the broader rally of financial stocks following the Republican elections sweep, which is expected to lead to more buoyant capital markets and a more business-friendly regulator, both of which should support increased activity and earnings at Schwab. As Schwab continues to improve its balance sheet and earnings, we expect potentially strong earnings growth over a multi-year period.”
