Selloffs often create opportunities; as the saying goes, “April showers bring May flowers!” suggests Mark Skousen, a leading growth and income expert and editor of Home Run Trader.
This is particularly true when a stock trades near the bottom end of its range, even though earnings are much better than average. This fact is only underscored when the man who runs the company invested millions of dollars of his own money in the stock after the share price fell.
Take Charles Schwab (SCHW), for example. Based in San Francisco, Schwab is the nation’s leading discount broker, with millions of clients and more than $7.8 trillion in client assets. I have quite of bit of experience with Schwab. I’ve had an account there for decades. I have had the privilege of meeting chairman and founder Charles Schwab three years ago in New York. He's an American hero.
Schwab is the #1 custodian for independent advisors. The company serves more than 10,000 of them. It is a great relationship for both sides. Customers like the safety, credibility and zero trading costs at Schwab. And it frees the registered investment advisors (RIAs) to give advice and manage client portfolios while Schwab handles important back-office tasks like issuing statements and cutting checks.
Moreover, as the Fed takes interest rates higher this year, Schwab will benefit as its net interest margin grows. Plus, the company is generating enormous fee revenue off its brand-name index funds and exchange-traded funds.
Schwab’s two biggest advantages over its competitors are scale and efficiency. That allows it to lower trading costs, boost technology investments and increase marketing.
Schwab recently reported quarterly earnings jumped 39% on a 13% increase in revenue. Those are excellent results by any standard. But net income was 8% below what Wall Street expected — and the stock plunged from over $85 a share to less than $70 a share.
Could that be an overreaction? CEO Walter Bettinger certainly thinks so. He purchased 30,449 shares last week at $68.55, an investment of $2.1 million. He now owns 359,714 shares. As the man at the helm, Bettinger knows more about the nation’s largest discount broker than anyone else (with the possible exception of founder and chairman Charles Schwab himself).
Bettinger knows that financial markets will bounce back eventually, driving up assets under management, revenue, earnings and ultimately, the share price. I estimate that Schwab will earn $3.88 a share this year and nearly $6 a share in 2023. That makes the stock quite an opportunity at these depressed levels.