Goldman Sachs’ Top Fund Manager Stock Picks: 25 Best Overweight Stocks

10. The Charles Schwab Corporation (NYSE:SCHW)

Number of Hedge Fund Holders In Q2 2024: 72

Overweight Percentage: 0.12%

The Charles Schwab Corporation (NYSE:SCHW) is one of the biggest financial and oldest financial services firms in the US. It has a diversified product portfolio which enables customers to invest in markets and also to seek advice for their investment decisions. As of H1 2024, 47% of the firm’s revenue came from interest. Notably, high interest rates have stressed The Charles Schwab Corporation (NYSE:SCHW)’s income statement this year. This is because the broker’s interest revenue dropped by 3.1% annually while its interest expense grew by 10%. This growth was led by the interest that The Charles Schwab Corporation (NYSE:SCHW) pays on its bank deposits. Consequently, lowering interest rates will help the bank – a fact that was evident in its 2.9% share price gain in the days after the Fed cut its interest rates by 50 basis points. However, lower rates also mean that The Charles Schwab Corporation (NYSE:SCHW) might be forced to cut its net interest margin forecast for the year – a fact that could weigh on the stock. Other notable factors for the broker include a massive 17% share price drop in July which followed a 5% dip in May. The July dip came as The Charles Schwab Corporation (NYSE:SCHW) high paper losses stemming from low priced bonds forced management to admit that it might have to rely on other banks to meet customer deposit requirements. This came as the firm’s brokerage customers sat at 985,000 in Q2, which undershot analyst estimates of 1 million.

Since balance sheet management is a key tenet of The Charles Schwab Corporation (NYSE:SCHW)’s hypothesis, here’s what management shared during the Q2 2024 earnings call:

“One of our objectives is to increase our emphasis on attracting transactional bank deposits like checking balances with our award-winning checking product. This would serve as a means of increasing liquidity and further stabilizing our overall deposit base. And we envision the potential to increase our usage of third-party banks like TD Bank and others to achieve the following gos, deliver extended FDIC insurance for clients, lower our capital intensity, and improve liquidity, subject, of course, to obtaining economics from the third-party banks that make sense for us. Net, these various actions should lead, again, over time to a bank that is somewhat smaller than our bank has been in recent years, while retaining the ability to meet our clients’ banking needs, lower our capital intensity and, importantly, protect the economics we are able to generate from owning a bank.”