A Surge In Schwab

Following the covid crash of 2020, retail traders emerged from their bedrooms and entered the market. Since then, many investors have found fortune and luck while others have been weeded out and liquidated. The number one stock trading app at the height of this frenzy was Robinhood but after their recent earnings report, they discussed seeing a decline in revenue as those same retail traders migrated to other platforms like TD Ameritrade, Webull, and Tastyworks. One company continues to see growth in client assets and it is Charles Schwab. They announced on January 18th that their client’s assets had grown 22% from the previous year and are now sitting at $8.14 trillion. In 2021, Schwab picked up more than 3 million new clients 2021. On top of this, the company reported a 13% growth in revenue year over year. 

So how will the company grow and what can we expect from one of the leading brokerages in the game? The CEO has shared his interest in turning their new clientele to lending directly from their bank. This entails a competitive low-interest rate for its clients with the assurance they won’t default since their assets are within the company.  “We estimate that if we can increase our bank lending penetration among clients by an incremental 3 to 5%, this could represent an incremental revenue opportunity of approximately $1 billion,” said Rick Wurster, Schwabs President. 

The company’s financials remain strong as it continues to dominate the brokerage scene and is looking into avenues to boost revenue. Looking at the chart, the stock is currently sitting at the 0.618 Fibonacci level from the December 1st low. The stock is trending below the 8-day moving average and 21 days moving average. With the dividend day coming up, it is likely to see a pullback to $83.00 and $77 if 83 can’t hold. How can traders benefit from this? Tech giants, excluding Facebook, have reported revenue above analysts’ estimates. Rate hikes are postponed until March when the Federal Reserve is set to increase interest rates by 0.25 BPS. During interest rate hikes, banks are opportune companies to own. Schwab is one to monitor when browsing for discounts as we move further into the year. The past six months have continuously seen large options purchases in SCHW and analysts upgrading the stock price target from 107 to 132. The current market leaders seem to be in the mega caps as we blow through the first big week of earnings season but be on the lookout for SCHW.

“Payments to U.S. Brokers Surged Amid Meme-Stock and Options Boom” – Wall Street Journal