Finance Giant on Schaeffer's List of "Must-Buy" Stocks for 2021

Investors developed a heightened appreciation for SCHW's upside in the fall

Jan 6, 2021 at 2:10 PM
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To kick off the new year, we compiled 12 of our staff's favorite bull picks for 2021. But there's still some leftover holiday cheer over at Schaeffer's, so we wanted to add two names to the list. On Tuesday, we shared our optimism surrounding Appian (APPN), and today we are sharing our second pick, Charles Schwab Corporation (NYSE:SCHW).


Charles Schwab completed the acquisition of discount brokerage rival TD Ameritrade on Oct. 6. Yet, it was not until early in November that investors had developed a heightened appreciation for the major potential upside for the company as a result of this giant acquisition, as the shares appreciated by about 30% from Nov. 4 into year's end. But it was the nature rather than the magnitude of this rally, that attracted us to SCHW as a potential “break-away” stock for 2021.

First, the advance was founded in the very strong business metrics the firm has reported since absorbing TD Ameritrade. Highlights from the November 2020 activity report (released in mid-December) included: 1) Net new client assets gained 168% from November 2019, and 2) New brokerage account openings for November surged year-over-year from 127,000 to 430,000.

Second, the granular daily price action underlying this year-end rally was characterized by a very bullish technical pattern, in which all pullbacks were contained at the sharply rising 10-day or 20-day moving averages. In addition, this rally plowed through the resistance in the $50 area that had characterized SCHW price action since the fourth quarter of 2018. With the “new” SCHW now on the threshold of $100 billion in market capitalization, the May 2018 all-time high at $60 is already within sights – with additional upside potential to the $70 area as the year progresses.

Lastly, a boon for options buyers is Charles Schwab stock is looking affordably priced at the moment. Specifically, the equity's Schaeffer's Volatility Index (SVI) of 34% sits in the 9th percentile of its annual range, meaning options players are pricing in incredibly low volatility expectations right now.


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