Cluster Buying By Insiders Of Charles Schwab – Insider Weekends

Following the collapse of Silicon Valley Bank, which we discussed in one of our Friday Wrap articles, regional bank stocks have seen a big drop in their stock prices along with a large increase in the number of insider purchases.

Our daily event-driven monitor provides updates on the various strategies that we follow, and when compiling a list of the insider purchases every evening, it was fascinating to see just how many were by insiders of regional banks.

This buying comes against a bleak background of various corporate jets parked in Omaha, Nebraska this weekend and the acquisition of Credit Suisse by UBS at firesafe prices in a deal engineered by the Swiss government and international regulators. As we mentioned before, insiders are often early and unfortunately run into burning buildings first.

The purchases that stood out the most last week was cluster buying by the insiders of Charles Schwab (SCHW), which  saw seven different insiders purchase shares – including the Co-Chairman and CEO. Charles Schwab has always been on radar for various reasons including the successful transition of the company from a broker-dealer to a wealth management firm and the frequent insider selling by founder Chuck Schwab.

The Charles Schwab Corporation is a financial services company with over $7.05 trillion in client assets, 33.8 million active brokerage accounts, and over 1.7 million banking accounts as of December 31, 2022. The company was originally a stock brokerage, but soon moved into wealth and investment management as well as banking services. They continued growing both organically and through their acquisition of TD Ameritrade, which was completed on October 6, 2020. The acquisition was a $26 billion all-stock stock deal, and as we mentioned in a Merger Arbitrage Mondays article, regulatory approval was a key risk for the deal. In addition to its securities broker-deal subsidiaries, Charles Schwab also has a banking subsidiary (Charles Schwab Bank) and an investment management subsidiary.

2022 was a difficult year for Charles Schwab, especially considering net new client assets declined by 21% YoY to $406.9 billion from $516.2 billion in 2021 and client assets as a whole declined by 13% YoY to $7.05 trillion from $8.14 trillion. Despite the challenging economic environment, the company saw total net revenues and net income both increase by 12% and 23% respectively. Revenue was $20.8 billion in 2022, and net interest revenue specifically was $10.7 billion, a 33% increase YoY. Trading revenue did decrease as expected, by 12% for a total of $3.9 billion. The mixed bag of financial results doesn’t make a particularly convincing case for investing in the company, though the results can be explained by difficult market conditions through 2022.

Coming back to Silicon Valley Bank and concerns surrounding other regional banks, we feel that many of these concerns aren’t quite applicable to Charles Schwab. The company at its core is a financial services business, and thus isn’t limited to just typical banking activities as most regional banks are. Most of their bank deposits are related to cash sweep accounts for their brokerage accounts to generate returns for excess uninvested cash in those accounts.

Furthermore, the main issue with Silicon Valley Bank had to do with the difference between their available-for-sale securities (AFS) and their held-to-maturity securities (HTM), the asset/liability mismatch due to the long duration of their bond portfolio and the big loss they had to take when they were forced to sell their  securities to cover deposit outflows.

Charles Schwab directly addresses this problem in their February 2023 Monthly Activity Report. While the unrealized losses in SIVB’s HTM portfolio were worrying, Charles Schwab is not facing a deposit outflow problem and more than 80% of its deposits fall with the FDIC insurance limits. The company’s CFO further elaborated last week:

On July 27th, 2022, The Charles Schwab Corporation also announced a share repurchase program of up to $15 billion of common stock with no expiration date. This share repurchase program replaced the one previously announced in January 2019, and since the 2022 authorization announcement, the company has been consistently buying back stock. By the end of 2022, the dollar value of shares that could be purchased under the program was $11.56 billion. These buybacks, alongside the purchases made independently by insiders of the company do give us renewed hope in the company.

Overall, we feel as though the nearly 30% drop in the stock price of Charles Schwab makes the company fairly attractive. Valuation metrics still make the company seem slightly expensive, as the P/E ratio is 14.70 and the Price/Book ratio is 2.91. Nevertheless, the continued buybacks and insider confidence seem encouraging. We don’t have the desire to go running into a burning building just yet and current market conditions hold us back from investing in the company. We plan to do more work on Charles Schwab in the coming days and it looks like a good candidate for our April 2023 spotlight idea.

Welcome to edition 674 of Insider Weekends. Insider buying decreased significantly last week with insiders purchasing $167.79 million of stock compared to $649.7 million in the week prior. Selling also decreased to $1.75 billion compared to $2.48 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 10.44. In other words, insiders sold more than 10 times as much stock as they purchased. The Sell/Buy ratio this week was favorable compared to the prior week when the ratio stood at 3.82.

Notable Insider Buys:

1. Capri Holdings Limited (CPRI): $42.41

Shares of this apparel chain were acquired by 2 insiders:

• Chairman & CEO John D. Idol acquired 240,000 shares, paying $41.57 per share for a total amount of $9.98 million. Mr. Idol increased his stake by 13.89% to 1,967,545 shares with this purchase.
• EVP, CFO & COO Thomas Edwards Jr. acquired 4,900 shares, paying $41.07 per share for a total amount of $201,243. Mr. Edwards increased his stake by 4.00% to 127,319 shares with this purchase.

You can view the list of recent insider transactions for Capri Holdings Limited here.

2. Ryan Specialty Holdings, Inc. (RYAN): $38.15

Shares of this insurance company were acquired by 2 insiders:

• Chief Executive Officer Patrick G. Ryan acquired 208,100 shares, paying $37.39 per share for a total amount of $7.78 million. These shares were purchased indirectly through a trust.
• Executive Vice President and General Counsel Mark Stephen Katz acquired 4,000 shares, paying $37.15 per share for a total amount of $148,603. Mr. Katz increased his stake by 53.33% to 11,500 shares with this purchase.

You can view the list of recent insider transactions for Ryan Specialty Holdings, Inc. here.

3. Global Water Resources, Inc. (GWRS): $12.72

Shares of this water resource management company were acquired by 2 insiders:

• Former Director William S. Levine acquired 541,000 shares, paying $13.50 per share for a total amount of $7.3 million. These shares were purchased indirectly by Levine Investments Limited Partnership.
• Director Andrew M. Cohn acquired 2,362 shares, paying $12.13 per share for a total amount of $28,649. Mr. Cohn increased his stake by 0.11% to 2,080,212 shares with this purchase.

You can view the list of recent insider transactions for Global Water Resources, Inc. here.

4. The Charles Schwab Corporation (SCHW): $56.41

Shares of Charles Schwab were acquired by 7 insiders:

• Co-Chairman and CEO Walter W. Bettinger acquired 50,000 shares, paying $59.31 per share for a total amount of $2.97 million. Mr. Bettinger increased his stake by 8.24% to 656,501 shares with this purchase.
• Director Stephen A. Ellis acquired 41,144 shares, paying $57.90 per share for a total amount of $2.38 million. These shares were purchased indirectly through a trust.
• Director Todd M. Ricketts acquired 10,000 shares, paying $56.79 per share for a total amount of $567,862. Mr. Ricketts increased his stake by 4.53% to 230,892 shares with this purchase.
• President Richard A. Wurster acquired 7,000 shares, paying $56.45 per share for a total amount of $395,169. Mr. Wurster increased his stake by 7.42% to 101,391 shares with this purchase.
• MD and CFO Peter B. Crawford acquired 5,000 shares, paying $57.96 per share for a total amount of $289,781. These shares were purchased indirectly through a trust.
• Director John K. Adams acquired 5,000 shares, paying $59.31 per share for a total amount of $296,550. Mr. Adams increased his stake by 13.53% to 41,955 shares with this purchase.
• Director Mark A. Goldfarb acquired 4,000 shares, paying $58.37 per share for a total amount of $233,468. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for The Charles Schwab Corporation here.

5. Guardant Health, Inc. (GH): $27.94

Shares of this precision oncology company were acquired by 2 insiders:

• Co-Chief Executive Officer Amirali Talasaz acquired 97,000 shares, paying $25.79 per share for a total amount of $2.5 million. Mr. Talasaz increased his stake by 5.37% to 1,902,345 shares with this purchase. 48,500 of these shares were purchased indirectly through various trusts.
• Co-Chief Executive Officer Helmy Eltoukhy acquired 93,052 shares, paying $26.32 per share for a total amount of $2.45 million. Mr. Eltoukhy increased his stake by 4.76% to 2,049,238 shares with this purchase.

You can view the list of recent insider transactions for Guardant Health, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Walmart Inc. (WMT): $139.4

Director Robson S. Walton sold 2,996,050 shares of Walmart for $138.15, generating $413.92 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Walmart Inc. here.

2. Airbnb, Inc. (ABNB): $118.15

Director Joseph Gebbia sold 350,000 shares of Airbnb for $117.22, generating $41.03 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Airbnb, Inc. here.

3. Booking Holdings Inc. (BKNG): $2440.85

Shares of this Travel Services company were sold by 3 insiders:

• CEO and President Glenn D. Fogel sold 6,967 shares for $2401.68, generating $16.73 million from the sale.
• Chief Financial Officer David I. Goulden sold 550 shares for $2418.64, generating $1.33 million from the sale.
• Director Radakovich Lynn Vojvodich sold 36 shares for $2418.64, generating $87,071 from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Booking Holdings Inc. here.

4. PepsiCo, Inc. (PEP): $175.13

Director Robert C. Pohlad sold 75,000 shares of PepsiCo for $172.47, generating $12.94 million from the sale.

You can view the list of recent insider transactions for PepsiCo, Inc. here.

5. Inspire Medical Systems, Inc. (INSP): $246.85

CEO and President Timothy P. Herbert sold 31,853 shares of this medical technology company for $275.39, generating $8.77 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Inspire Medical Systems, Inc. here.

You can view the full list of sales from this Insider Sales page.

Disclaimer: Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.