Charles Schwab Corporation ( SCHW ) recently detailed its findings from the Charles Schwab Active Trader Sentiment Survey . The survey received responses from 653 active traders and investors during March-April 2011, and revealed that active traders are very bullish about the market. As this should translate to an overall increase in online trading, it is great news for Schwab and other firms like E-Trade ( ETFC ), Ameritrade ( AMTD ), Fidelity and Bank of America ( BAC ), which all have large online brokerage services.
Our $19.74 price estimate for Charles Schwab implies a roughly 10% premium to the stock's market price.
The survey and its results
All the traders who participated in the survey had traded at least 36 times over the period of a year. These were hence frequent traders who clearly had a close eye on the equity market. And almost half of them (47%) have a positive outlook towards the market, with 77% viewing the market's volatility as a favorable factor. So much so that 72% of the traders who were expecting a tax refund claim that they would be investing some part of the refund in the market.
In terms of actual stock preference, the technology sector has grabbed the attention of more than a third of the traders. Interestingly, there has been a reduction in the preference for ADRs among them - with the unrest in the Middle East and the Japan crisis quoted as the reason for this change.
More trades = More revenues for Schwab
The optimism among traders has led to a reduction in the amount of cash in their portfolios, as they move funds into the stock market.
Schwab has more than 8.1 million client brokerage accounts, and while growing optimism towards the market should lift this number, Schwab would benefit most from an increase in the average number of revenue trades carried out.
To see how the number of trades affects Schwab's value, you can make changes to the base case estimates in the interactive chart above.