Every crisis harbors investment opportunities. When the banking crisis erupted last year, my attention was swiftly drawn to the financial sector. Amid this flurry, one company stood out – The Charles Schwab Corporation (NYSE:SCHW), a formidable banking and brokerage behemoth. Despite intermittent weakness, its signs of growth were hard to ignore. Since my bullish article in September 2023, its shares have catapulted 20%, trouncing the S&P 500’s meager 6.5% ascent.
Now, as the dust settles, I sense that the low-hanging fruit has been plucked. The recent share surge and persistent financial pain nudge me to recommend exploring other opportunities. Granted, Schwab’s shares may ascend further – especially if the broader market blooms. Nevertheless, weighed against the assumed risk, there are more favorable prospects at present. Consequently, I am downgrading the stock to a ‘hold’.
Assessing the Firm’s Fortunes
Despite this change in posture, Charles Schwab remains a compelling prospect for long-term investors – just not a standout one. In many aspects, the company continues to deliver impressive results. In November, total client assets surged to $8.18 trillion, trailing only slightly behind the all-time high of $8.24 trillion reported in July. This surge, propelled by a $19.2 billion influx of net new assets and $508 billion from the stock market rally, counteracted three months of dwindling asset prices.
The brokerage arm also shows remarkable vigor. The company recorded 286,000 new brokerage accounts in November, reflecting strong momentum in a mature trading space. Throughout 2023, it amassed 3.47 million new brokerage accounts, averaging about 315,000 per month and marked an all-time high of 34.67 million active brokerage accounts in November.
However, not everything is rosy. Average interest-earning assets have steadily declined, dwindling from $614.10 billion in June 2022 to $439.12 billion by November. Furthermore, the company’s bank account deposits, a historical source of cheap capital, face stiff competition in the current high-interest rate environment.
