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Schwab: Firing On All Cylinders'

BusinessWeek Investor -- Inside Wall Street

Schwab: Firing on All Cylinders'

Will Charles Schwab (SCH) stay on the comeback trail? Contrarian investor Bernie Schaeffer, who heads his own research outfit, thinks so. The stock tumbled from 77 in mid-April to 26 in October, partly because of doubts that the brokerage industry might not top last year's stellar advance. Schwab has since leaped to 57. The top U.S. discount broker and a fast-growing online trader, Schwab should hit 70 in six months and vault to 100 in a year, says Schaeffer. He probes for strong fundamentals. And he digs for evidence of skeptical sentiment, which he measures by the short position in the stock.

At Schwab, he says, the "powerful growth in its business is made more compelling by the sentiment component." The short-sellers' interest in Schwab has jumped, he notes, from 5.2 million shares in December to 14.1 million at the end of February. A similar jump in late 1998 pushed Schwab's stock sevenfold in six months, says Schaeffer. He sees another such big upturn.

"Schwab's business continues to fire on all cylinders," says Gregory Smith of Hambrecht & Quist, who rates the stock a buy even though it is selling at a 65 price-earnings ratio, based on this year's earnings. New account openings continued to rise in February, the second-highest jump on record. And total customer assets hit $765.5 billion, up 50% from a year ago and up 7% from January. With Big Board and Nasdaq trading continuing to accelerate from February levels, Smith sees even higher earnings for Schwab in the first quarter. So he has raised his first-quarter earnings estimate from 19 cents a share to 23 cents.

Schaeffer also says Schwab could be a takeover target for a big financial-services company.By Gene G. MarcialReturn to top

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