We recently compiled a list of the 12 Undervalued Wide Moat Stocks to Buy According to Analysts. In this article, we are going to take a look at where The Charles Schwab Corporation (NYSE:SCHW) stands against the other undervalued wide moat stocks.
As per BlackRock, European equity gains have managed to outpace the US to start 2025. Despite this, the asset manager expects the US to reclaim leadership this year as the corporate earnings strength and the AI theme broaden out. The US equities have long exceeded the performance of their global peers. BlackRock expects that this has been made possible because of deeper capital markets and relative deregulation which promote risk-taking. The US can keep its edge, despite the S&P 500 lagging so far this year.
Markets to Broaden Out in 2025, Says BofA
As per Savita Subramanian, head of US Equity and Quantitative Strategy for BofA Global Research, the market has been broadening out. Last year and the year before that, the mega-cap tech companies managed to outperform the rest of the S&P. However, in the current year, broader market trends are visible. As per Subramanian, higher productivity and reshoring of manufacturing to the US are the 2 positive forces that are expected to fuel potential market growth beyond the tech sector.
As per Reuters, the volatility is expected to increase due to tariff announcements, policy changes from President Donald Trump, and job cuts, resulting in uncertainty. Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, has a year-end forecast for the S&P 500 of 6,500 as his “base case.”
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
BlackRock Remains Overweight on US Stocks
BlackRock expects that mega-cap tech and other AI-linked stocks will keep driving the US equity returns, mainly as and when the AI adoption grows. That being said, there are signs of earnings strength broadening beyond technology. The analysts now anticipate tech to post 18% earnings growth this year in comparison to 11% for the broader index. As per the LSEG data, this is a smaller gap versus 2024.
Overall, strong economic growth, broadening of earnings growth and a quality tilt underpin the firm’s conviction and overweight in US stocks as compared to other regions. The valuations for the big tech are backed by healthy earnings, and less lofty valuations for several other sectors. As per Kristy Akullian, CFA, Head of iShares Investment Strategy, there are tailwinds potentially favoring US equities over the rest of the world, mainly large-cap companies. The relatively easy financial conditions, healthy consumer balance sheets, and the expectations of deregulation and tax cuts continue to support the positive view.
Our Methodology
To list the 12 Undervalued Wide Moat Stocks to Buy According to Analysts, we used a screener and sifted through several media reports to choose companies having an economic moat and that analysts see upside to. Next, we filtered out the ones that trade at a forward P/E of less than ~20.0x. Finally, the stocks are arranged in ascending order of their average upside potential, as of February 28.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A corporate finance professional studying a financial performance chart.
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.”
Overall SCHW ranks 7th on our list of the undervalued wide moat stocks to buy according to analysts. While we acknowledge the potential of SCHW as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than SCHW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.