2024-02-14 05:06:29 ET
Summary
- My last bullish stance in Charles Schwab did not work out; -5.39% alpha vs. S&P 500). But my 'Sell' view in Jan. 2024 made +6.45% alpha, leading to +1.06% alpha overall.
- Now, due to more discounted valuations, I am revising my stance to a Neutral/Hold.
- Management's flagged 2024 to be a 'transitional year' in the latest earnings call. That doesn't inspire prospects of outperformance when the market is going full speed ahead.
- SCHW has been forced to rely on more expensive funding sources to replenish the reduced funding pool of clients' transactional cash balances.
- A sustained reduction in the supplemental funding sources is a key trigger for the stock, and I believe the stock will remain range-bound vs. the S&P 500 until this happens.
Performance Assessment
In my last coverage of Charles Schwab ( SCHW ), I had a bullish view, primarily because I expected multiple quarters of margin expansion. However, on January 14, 2024, I changed my stance to a 'Sell', as mentioned in a pinned comment update below the article . For the duration of my bullish view, SCHW delivered a total shareholder return of -0.27%, compared to the S&P 500's ( SPY ) ( SPX ) +5.12%, leading to negative alpha of 5.39%. For the duration of the 'Sell' view since January 14, 2024, until today, SCHW has delivered a total shareholder return of -0.99% compared to the S&P 500's +5.46%, leading to alpha of +6.45%. Altogether, this amounts to +1.06% of alpha generation.
Thesis
I am now remaining on the sidelines with a neutral view on Charles Schwab as I note the following:
- A 2024 'transitional year' is unlikely to put SCHW in the alpha-leaders pack
- Key metrics still need to indicate signs of revenue profile improvement
- Discounted valuations make a 'Sell' less compelling
Read the full article on Seeking Alpha
For further details see:
Charles Schwab: Mr. Market Says Actions Speak Louder Than Words