Add This One To The List

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Last week we talked about identifying industry leaders that are getting trashed as the market falls, especially those with insider buying. We are going to continue with that theme this week. The idea is to compile a list of quality ideas to consider when the stock market’s knife stops falling.

With the NASDAQ breaking support and hitting a fresh 2022 low, the knife could have more falling to do. So, take out your pen and paper and jot down The Charles Schwab Corporation (SCHW). As if you don’t know, but just in case, Charles Schwab is one of the largest Financial Services companies in the self-directed space with 33.6 million active brokerage accounts, 2.2 million corporate retirement plan participants, 1.6 million banking accounts, and approximately $7.86 trillion in client assets. (1)

The discount broker recently hit its 52-week low of $65.73. If the overall market continues its weakness, SCHW might slip $60 if the price falls below $66. If $66 or $60 don’t prove to be sturdy technical support levels, then Charles Schwab could dip to its 200-week moving average around $53.

While we are practicing patience as the stock market endures one of its worst runs since 2008, Schwab Chief Executive Officer (CEO) Walter Bettinger has seen enough. He opened his wallet and spent big, buying 67,089 SCHW shares for a total investment of $4.63 million. (2)

Since 2015, Bettinger has sold Charles Schwab stock 38 times for $333.8 million. Prior to last week, the CEO bought once before. In 2018, the Chief Executive purchased $4.8 million of SCHW shares at $38.31. Two and a half years later, Bettinger returned to his preferred trading habit, selling at $70.68. That’s a $32.37 profit for an 84.5% gain.

CEO Bettinger might not have to wait so long to get back to selling this time around. Wall Street has a one-year price target of $96.23. (3) As we type, the stock trades at $66.33. Analysts forecast earnings per share (EPS) of $5.03 in 2023, up from this year’s forecast of $3.88. Revenue is also expected to climb handsomely. The street predicts sales of $20.85 billion in 2022 and $24.34 billion next year. (4)

In the last half-decade, Charles Schwab Corporation traded with an average price to earning ratio (P/E) of 22.31 and bottomed out at 12.78 times earnings. During the same timeframe, investors typically paid 6.97 times sales (P/S) with a low watermark of 3.69.

Using Wall Street’s consensus 2023 earnings/revenue forecasts and corresponding average/low P/E and P/S ratios, we can calculate potential price targets.

Possible Price Points:

Average P/E – $112.22
Low P/E – $64.28
Average P/S – $93.26
Low P/S – $49.35

Overall: Based on The Charles Schwab Corporation (SCHW) current price and projected earnings, sales, and corresponding valuation metrics, SCHW appears to offer potential investors considerably more upside than downside. If the market knife continues to fall, the reward-to-risk profile would become more favorable.

SCHW is appropriate for investors with average risk tolerance and a time horizon of at least two years.


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