On July 8, 2020, Giverny Capital released its Q2 2020 Investor Letter, a copy of which you can download here. The Fund returned 19.64% for the second quarter of 2020. Meanwhile, the benchmark S&P 500 Index gained 20.54%. You should check out Giverny Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Giverny Capital highlighted a few stocks and Schwab Charles Corp (NYSE:SCHW) is one of them. Schwab Charles Corp (NYSE:SCHW) is a financial services company. Year-to-date, Schwab Charles Corp (NYSE:SCHW) stock lost 25.2% and on July 14th it had a closing price of $34.55. Here is what Giverny Capital said:
“Turning to Charles Schwab, we believe this is a wonderful business with a less-than-wonderful earnings profile. It continues to take large chunks of market share from full-service stockbrokers as investors trust it to offer great value. During the market panic in March, Schwab opened record numbers of new brokerage accounts and took in record levels of new assets. Schwab has consumer trust because it offers good value. Unfortunately, Schwab today earns roughly 60% of its income investing or lending customers’ bank deposits. With interest rates approaching zero, that spread between the amount Schwab pays depositors and the yield it receives on conservative fixed income investments is pinched. Wall Street foresees earnings per share dropping from $2.67 in 2019 to $2.07 this year.
We continue to feel Schwab is worth holding. Later this year, it should close on the acquisition of TD Ameritrade, itself a fine firm and with a better technology platform than Schwab’s. Analysts believe Schwab can take as much as $2 billion of operating expenses out of Ameritrade over three years, which would lead to 25% earnings accretion. That might not fully offset the loss of income from lower interest rates, but the combined firm should be much stronger competitively than Schwab is today. And Schwab presents us with a free warrant on rising interest rates. The risk with Schwab is that many of the services it provides, most obviously trading, have commoditized to the point that it has limited earnings sources despite providing superior service to clients. If rates remain low for years, Schwab will need to find other ways to price for the value it creates. Easy to say, not easy to do.”
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In Q1 2020, the number of bullish hedge fund positions on Schwab Charles Corp (NYSE:SCHW) stock decreased by about 11% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with SCHW’s upside potential. Our calculations showed that Schwab Charles Corp (NYSE:SCHW) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.
