S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Latest freight railroad layoffs and Wall Street pressure renew concerns about safety and service
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Dell, NetApp rise; Ginkgo Bioworks, New York Community Bancorp fall, Friday, 3/1/2024
How major US stock indexes fared Friday, 3/1/2024
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China pledges to increase opportunities for foreign companies as it seeks to boost its economy
Brazil's economy grows 2.9% in Lula's 1st year, beating expectations
Critical asset just had biggest fall on record (Ad)
Question of whether Nebraska public money can go to private schools still set for November ballot
A US appeals court ruling could allow mine development on Oak Flat, land sacred to Apaches
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Latest freight railroad layoffs and Wall Street pressure renew concerns about safety and service
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Dell, NetApp rise; Ginkgo Bioworks, New York Community Bancorp fall, Friday, 3/1/2024
How major US stock indexes fared Friday, 3/1/2024
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
China pledges to increase opportunities for foreign companies as it seeks to boost its economy
Brazil's economy grows 2.9% in Lula's 1st year, beating expectations
Critical asset just had biggest fall on record (Ad)
Question of whether Nebraska public money can go to private schools still set for November ballot
A US appeals court ruling could allow mine development on Oak Flat, land sacred to Apaches
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Latest freight railroad layoffs and Wall Street pressure renew concerns about safety and service
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Dell, NetApp rise; Ginkgo Bioworks, New York Community Bancorp fall, Friday, 3/1/2024
How major US stock indexes fared Friday, 3/1/2024
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
China pledges to increase opportunities for foreign companies as it seeks to boost its economy
Brazil's economy grows 2.9% in Lula's 1st year, beating expectations
Critical asset just had biggest fall on record (Ad)
Question of whether Nebraska public money can go to private schools still set for November ballot
A US appeals court ruling could allow mine development on Oak Flat, land sacred to Apaches
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Latest freight railroad layoffs and Wall Street pressure renew concerns about safety and service
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Dell, NetApp rise; Ginkgo Bioworks, New York Community Bancorp fall, Friday, 3/1/2024
How major US stock indexes fared Friday, 3/1/2024
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
China pledges to increase opportunities for foreign companies as it seeks to boost its economy
Brazil's economy grows 2.9% in Lula's 1st year, beating expectations
Critical asset just had biggest fall on record (Ad)
Question of whether Nebraska public money can go to private schools still set for November ballot
A US appeals court ruling could allow mine development on Oak Flat, land sacred to Apaches

Schwab’s Drop This Week Could Be The Opening Of The Year (Again)

Charles Schwab stock price

Key Points

 

Having bounced up 35% from the multi-year lows they plunged to in the wake of SVB’s collapse, investors would have been thinking Charles Schwab Corporation’s NYSE: SCHW stock was getting back to normal. Certainly, that was the opinion of the Marketbeat team and some of the Wall Street heavyweights at the time. 

But in the fortnight since their shares have lost much of their elasticity, the stock is suddenly looking quite heavy. Yesterday saw shares drop another 5%, remaining 30% lower than before the recent financial crisis .

Initial Concerns

The concern at the time of the initial drop was that Schwab was equally exposed to higher interest rates by its cash sorting habits. These caused much of the damage to SVB, so you can understand why investors were keen to get their money out. But the snap back in the following sessions suggested the fears of contagion were overblown. This week’s weakness however suggests otherwise. Let’s dive in and see if the fresh concerns are justified or if this could be one of the great buying opportunities of the year. 

The catalyst for yesterday’s drop was a downgrade from the team at Morgan Stanley, who cut their rating on Schwab stock from Overweight to Equalweight. They cited continuing uncertainty around interest rates and the knock-on effect this will have to cash-sorting trends. In a note to clients, analyst Michael Cyprys summarized why this is considered a headwind for Schwab; with the Fed continuing to raise rates, Schwab customers are moving cash out of sweep accounts into money market funds at a rate of $20B per month, which is double the amount Morgan Stanley had previously been modeling. In a note to clients, Cyprus wrote that "this means Schwab earns less from monetizing cash, which will hurt earnings on top of higher funding costs”. 

Charles Schwab Stock price forecast

It’s a long way from being a full-blown bank run, like the one that took down SVB and almost toppled First Republic, but the fresh uncertainty around which way the Fed will move next is too much for the Morgan Stanley team to confidently hold their Overweight rating going into the next earnings report. Cyprys made this clear when he wrote that "while clients aren't leaving and Schwab has other sources of liquidity, earnings face more pressure than we had expected".


Longer Term Potential

This was a risk that the team at J.P. Morgan wrote off last week, when analyst Kenneth Worthington wrote to clients that Schwab has “virtually no risk from a bank-type run." At the same time, Worthington did flag the current uncertainty as a risk to the company’s coming earnings reports, so it’s fair for investors to treat this as a serious headwind. 

When the longer-term opportunity is considered though, is $50 or thereabouts really a fair price for Schwab’s stock right now? This is the same price the stock was at towards the end of 2020, and where it spent much of 2018. Its revenue and profits have doubled in the years since then, and while the coming quarters might be a bit tougher than expected, it’s hard to see that as a reason why shares should have to live with the SVB inspired 30% haircut. 

Remember, it was only two weeks ago that the team at Citi were upgrading their rating on Schwab stock to a Buy on the back of the drop. Analyst Christopher Allen wrote at the time that the pullback was opening up a “compelling entry point” and we’re inclined to agree. Our MarketRank Forecast has the stock rated as a Moderate Buy with more than 50% upside to be had from where shares closed on Thursday. Investors might have to pinch their noses a little for the next earnings report, but the long term opportunity remains impressive.

→ Critical asset just had biggest fall on record (From Stansberry Research) (Ad)

Should you invest $1,000 in Charles Schwab right now?

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Charles Schwab (SCHW)
4.6836 of 5 stars
$66.47-0.5%1.50%26.17Hold$69.92
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Sam Quirke

About Sam Quirke

  • s.quirke.us@gmail.com

Contributing Author

Technical Analysis

Experience

Sam Quirke has been a contributing writer for MarketBeat since 2019.

Areas of Expertise

Technical and fundamental analysis, tech stocks, large caps, timing entries and exits

Education

Trinity College, Dublin, Ireland

Past Experience

Professional futures trader, start-up fund manager


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