For many years, when you asked someone to name the best online broker to invest in, many would reply with E*Trade or Scottrade. Rarely was Charles Schwab (NYSE: SCHW) part of the discussion. But times have changed. Now Charles Schwab is not only included in the discussion, but many times, is considered the best online broker.
So should you invest in one of the best online brokers? Or are you better off putting your investment dollars in another firm? After reading this post, you will see why an investment in Charles Schwab is a smart investment.
Who Is Charles Schwab?
Charles Schwab started back in 1975 when the Securities and Exchange Commission deregulated broker commissions, paving the way for discount brokers to help average investors invest in the stock market. The company was eventually bought by Bank of America in 1983 but then two years later in 1985, Charles bought the company back and it has been on its own ever since.
During the time when Bank of America owned the company, Schwab created The Equalizer, which was a DOS based program that morphed over the years into online trading as we know it today.
Today, the company serves both individual and institutional clients with its own funds as well as third party investments and has grown to be a leading investment firm in the country.
Outlook For 2017
In January, Charles Schwab reported 4th quarter earnings and made headlines. They reported:
- Earnings per share (Q4): Up 50%
- Revenue (Q4): Up 17%
- New accounts (Q4): Up 21%
- Client Assets (Q4): Up 11%
In fact, over the past 5 years, Charles Schwab has had an earnings per share growth of 13%. And for 2017, the company is not slowing down. Estimates have earnings per share rising 18% and revenues rising close to 12%.
When it comes to the share price, analysts expect it to grow on average of 14% to over $47 per share.
Charles Schwab: A Buy
Even with the stock price sitting at its recent highs, Charles Schwab stock is one to own. They have an excellent balance sheet and a solid history of growth that shows no signs of slowing down.
While some analysts think that the online broker price war that is currently happening will hurt revenues, Schwab is not as vulnerable to this as others. Yes, it will make a dent in their revenues in the short term, but seeing that they have a diverse customer base will offset this drop in revenue.
And with interest rates rising, Schwab will more than make up for a hit to revenues with an increase in interest earnings from their cash stock pile which currently sits at $186 billion. As more clients come on board and invest with Schwab, this cash stockpile should only grow larger.
Speaking of adding new clients, Schwab want to focus more on financial planning, which has mainly been reserved for people with a high net worth.
Schwab CEO Walt Bettinger said he plans to do for investment planning what low-cost mutual funds, ETFs, and robo-advisors have helped Schwab do for asset allocation.
As it stands now, financial planning only makes up a small percent of income for the company. By growing this segment, Schwab will continue to separate itself from other investment firms.
When you take all of this and put it together, Charles Schwab is set up nicely to continue to grow its business and its stock price. While the stock price may look a little pricey compared to its historical average, the sky is the limit for this investment firm.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.