Charles Schwab Faces Contrarian Opportunity and Vulnerability Amidst Downgrades and Cash Sorting Issues

Charles Schwab presents a contrarian opportunity for investors due to its 30% undervaluation caused by the regional banking sell-off. The company's client cash balance has remained steady, with outflows from bank deposit accounts being reallocated to higher yielding money market accounts within the Charles Schwab platform. The company also saw strong inflows in core net new assets during the most volatile week for regional banks. Charles Schwab has a strong liquidity position, with $504 billion in organic and supplemental liquidity and the option to sell its available for sale securities as a last resort. The company is currently trading at 10.6x 2024 P/E, near 2008 financial crisis levels, but has the potential for multiple expansion in the longer term. The author initiates Charles Schwab with a Buy rating and a 1-year price target of $89.15, implying 65% upside from current levels.