Tax Reform Should Bode Well for Charles Schwab

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Tax Reform Should Bode Well for Charles Schwab

By Donna Fuscaldo | September 28, 2017 — 1:09 PM EDT

Charles Schwab Corp. (SCHW), the discount brokerage firm, has been bouncing along near its 52-week high so far this week, but that doesn’t mean it won’t go higher, particularly if President Donald Trump gets tax reform pushed through.

That’s according to Seeking Alpha, which laid out a bevy of reasons why investors may want to buy shares of Charles Schwab, one of the leaders in the online brokerage world. Even at $44.01, close to its 52-week high of $44.35, shares could start to gain more, particularly in the first quarter of next year.

Charles Schwab (SCHW) Upsides and Downsides

Take tax reform for starters. While all eyes have been on technology stocks that have a lot of cash overseas and are hoping for a reduced tax rate to bring it back to the U.S., Charles Schwab is the opposite, with little business outside the U.S. That means that if tax reform does get passed and the corporate tax rate is reduced, Schwab stands to benefit the most. On top of that, because it doesn’t have big exposure overseas, it won’t suffer as much as rivals from a weakening U.S. dollar. If the U.S. dollar stays weak next year it could increase interest in stocks like Schwab.

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But it’s not just tax reform that could draw more interest to the San Francisco-based discount broker. On the sector front, with ongoing consolidation, Schwab could become an attractive takeover target for a big financial firm that is betting the financial markets will be huge during the next 10 years. While Schwab has been a player in the consolidation, it could become a target, which should send the stock higher.

Back in 2011, the company spent $1 billion to acquire OptionsXpress as way to get in on the options trading market. Rival E*Trade has also been on a buying spree in recent years, spending $725 million last July for OptionsHouse. If Charles Schwab doesn’t get bought out, its not a bad thing either for the stock. That’s because consolidation in a sector may not bode well for consumers, but it does mean less competition, which in turn could result in higher commissions for the likes of Schwab. That would be a welcome reversal from the years of declines.

 

Published at Thu, 28 Sep 2017 17:09:00 +0000

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