Chart of the Day: Charles Schwab (SCHW) – Breakout on Monthly Chart

Click to Enlarge.
Click to Enlarge.

Schwab reported their calendar Q4 12 earnings in mid-January, and as the attached chart shows, the stock traded above key monthly resistance, and looks to have broken out of a long-term consolidation.

We’d love to buy more on weakness, but only the daily chart is currently overbought, and the weekly and monthly charts are just getting started.

Fundamentally, Schwab will benefit nicely from the “asset allocation” trade which is expected to take place on a very large scale, once the interest rate environment begins to change, BUT here is the 2nd catalyst that will benefit Schwab: from our calculations, and given the fact that Schwab waives between $0.10 – $0.11 on money market management fee waivers given the abnormally low money market yields each quarter, we think that abnormally-low short-term rates is masking $0.40 to $0.50 in eps per year, once the zero interest rate policy (ZIRP) and the Fed starts raising rates.

When will this happen ? Your guess is as good as mine. Even the Fed doesn’t know. The targeted 6.5% unemployment rate is one metric, but I think we’ll need at least 12 – 18 months of substantial monthly jobs growth to get to that number.

Consensus estimates for SCHW are for $0.73 in 2013 and $0.86 in 2014, leaving SCHW currently trading at 23(x) and 19(x) earnings estimates for 8% growth.

Part of the interest of late in the stock price could be the first major positive equity fund flows in January ’13. The iceberg around equity investing might be starting to melt.

Schwab will benefit from equity fund flows, asset allocation re-balancing, more interest in trading (DART’s) and eventually higher money market rates.

The nuclear winter is starting to thaw for the asset gatherer/discount broker.

(Long SCHW – want to get longer) and we also custody all client assets with SCHW.

PS – Schwab is up on heavy volume on Thursday, February 7th, the day after this posted, on news that more of their ETF’s are going to be eligible for commission free trading.

 

 

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