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Should You Consider Investing in Charles Schwab (SCHW)?

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Jose Karlo Mari Tottoc
·4 min read
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Ensemble Capital, an investment management firm, published its “Ensemble Fund” first quarter 2021 investor letter – a copy of which can be seen here. A return of 3.80% was delivered by the fund in the Q1 of 2021, below its S&P 500 benchmark that delivered a 6.17% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Ensemble Capital, in their Q1 2021 investor letter, mentioned The Charles Schwab Corporation (NYSE: SCHW) and shared their insights on the company. The Charles Schwab Corporation is a Westlake, Texas-based financial services company that currently has a $121.5 billion market capitalization. Since the beginning of the year, SCHW delivered a 21.75% return, extending its 12-month gains to 80.03%. As of April 20, 2021, the stock closed at $63.69 per share.

Here is what Ensemble Capital has to say about The Charles Schwab Corporation in their Q1 2021 investor letter:

"To be sure, the long-term is made up of a bunch of short terms, but no company has a smooth trajectory up and to the right. That’s why it’s critical for us to build conviction in high quality businesses that add value for their stakeholders in good times and bad times.

One of our best performing holdings in the first quarter, Charles Schwab & Co, offers a good example of this dynamic. The stock had underperformed the S&P 500 in recent years, as declining interest rates and the elimination of trading commissions dented profitability. As we wrote in October 2019, though, its decision to proactively “kill commissions” only fed its “flywheel of scale” and took its major competitors by surprise. Its immense scale allows Schwab to spread out expenses much wider than its competitors and its low-cost profile attracts investor assets to its platform. Its scale also provides Schwab an opportunity to launch new products and services for its large client base and gain immediate traction, while it may take an upstart years to scratch the surface.

Put differently, we’ve viewed Schwab as a “coiled spring” – its business fundamentals and competitive position improved while its stock price languished. Now that interest rates have started to climb, the market is beginning to recognize the huge opportunity Schwab has to better monetize the $6.9 TRILLION in assets held by the company. The spring is starting to uncoil, sending the stock up 23.3% over the last three months."

Best bank stocks for 2021
Best bank stocks for 2021

Jonathan Weiss/Shutterstock.com

Our calculations show that The Charles Schwab Corporation (NYSE: SCHW) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, The Charles Schwab Corporation was in 61 hedge fund portfolios, compared to 53 funds in the third quarter. COST delivered a 10.58% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best innovative stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

Disclosure: None. This article is originally published at Insider Monkey.