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Friday, 10/17/2003

Discounting the Discounter
By Nich Sheldon
SCH - Charles Schwab

Company Description

The Charles Schwab Corporation (NYSE: SCH - News), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. (member SIPC/NASD) and its other operating subsidiaries, is one of the nation's largest financial services firms serving investors through offices, regional client telephone service centers and automated telephonic and online channels. The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at, and, respectively.

[Source: Company Press Release]

Reasons to Invest:

Over the past few weeks, stocks have been hitting new 52-week highs (and even all time highs) on Wall Street. This, coupled with an improving economy, has made this week's selection for the Drip of the Week that much more difficult. Using QCharts (, I have created a workspace entitled watch list. This watch list is basically a listing of stocks that I feel have the greatest potential to move higher over the next few years, and this week's selection (chosen directly from my watch list) has the makings of a promising DRIP candidate.

When the bottom fell out of the market, most (nearly all) online brokers took a huge hit to the downside. People just lost interest in investing when they were so unsure of the market's sentiment. You can't blame people for not wanting to invest in a market that had no clear direction. Now that the market has turned to the upside and new highs are being reached across the board, traders are finally getting back into the market.

In addition, since the market is recovering, the demand for solid advisory on market direction has never been stronger. So whom do these traders turn to? There are a number of online brokers that can help out the individual trader, but Charles Schwab has the experience, advisors, customer service and the mindset to help increase your portfolios over time.

Keeping all of this in mind, Charles Schwab (SCH) is this week's Drip of the Week. On Wednesday (10/15/03) SCH hit a new 52-week high of 14.20. Furthermore, since March the stock has been on the move higher, hardly pausing for a breath along the way. It may seem that people are no longer discounting this discount broker, but rather investing in this stock for its discount price.

Dividend wise, SCH is predicting a 5.66 percent dividend percentage growth rate over the next three years and a 7.19 percentage growth rate over the next five years. This is good news considering that their annual dividend is $0.06, and their dividend yield is only 0.41 percent. Don't let this fractional dividend get you down, because SCH is ranked well amongst its competitors. In fact, as far as price performance goes, SCH is ranked 81st out of 99 (99 being the best) over the past month.

I was researching SCH on (now part of Yahoo!) and came across a new section entitled "Risk Alerts." This section gives a grade to several different categories for any given stock. The categories are estimate revisions, analyst recommendation, institutional selling, shorted shares, price deterioration and price momentum. Charles Schwab passed all of these sections except for the shorted shares category. Failing the shorted shares category is a good sign for Drip Investors, as this means that shares have not had any increasing bearish interest over the past month or so. From what I gather, this means that traders who are considering adding SCH to their portfolios, are at low risk for a dip to the downside.

While low risk to the downside is very important to any (Bullish/Long) investor, I find it necessary to note that SCH's chart is a bit overextended and that I suspect profit taking is due in the near future. A dip to the downside is more than likely going to occur over the next few weeks and this could provide an even better entry point into SCH's shares.

This concludes another exciting episode of the Drip of the Week. Stay tuned next week, for another DRIP worthy of the limelight.

Until Next Week,
Nich Sheldon

Broker Recommendations

Strong Buy         1
Buy                1
Hold               7
Sell               4
Strong Sell        2

Brokers Covering  15

DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = Yes
Accept Foreign Accounts: Yes
Temper Enrollment:  Yes

Min/Max Investment = $10-$5,000/Month

Reinvestment Fees - 
Dividend investment fees: None
Cash investment fees: None
Auto reinvestment fees: None

Transfer Agent:
Wells Fargo Bank

Corporate Headquarters:
120 Kearny Street
San Francisco, CA 94108
Phone: (415) 627-7000
Fax: (415) 627-8538


Copyright 2003

Do not duplicate or redistribute in any form.
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