SCHW

Charles Schwab

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-$2.74 -3.63%
Sept Idea Comp - Rocket Companies $RKT
Interest rates for mortgages are above 6%. Mortgage demand falls to a new 22-year low, according to Forbes. Home sales dropped 19% in July.
Why would anyone be buying shares of mortgage companies when this is the current environment of the real estate market?
Interestingly, it's the insiders of $RKT that are buying the dip. And in this memo, I will explain the possible reasons why insiders are bullish on Rocket and why this company is a great investment.
First, Rocket's business structure has been starting to look more like a bank than an internet startup.
Over the past few years, Rocket has been filling its balance sheets with mortgages that it originates. Before, it would sell its mortgages to Fannie Mae or Freddie Mac for securitization. Now, it's starting to hold onto those loans and reaping the cash flow from it.
And with mortgage payments surging throughout 2022, Rocket is seeing its inflation skyrocket along with it.

Insiders know that with surging mortgage payments, $RKT will have a lower impact on its revenues. Loan origination volume is down but at least the loans that they originate and hold will provide them with cash flow during these hard times.
Another thing is that Rocket is leading the consolidation of the home mortgage industry. The home mortgage industry is highly fragmented with many mom-and-pop shops. As Rocket gains more market share, the company will see higher profits overall and have more power over its industry.

In this slide, we can see that Rocket Mortgage has less than 10% of the mortgage market. When compared to other companies like $SCHW $AMZN $INTU and $BKNG, all who lead the consolidation of their own industries, Rocket could reap a similar level of fortune as those other companies if it can gain a similar percentage of market share as those industry leaders.

And based on the growth of Rocket's market share in the mortgage market, I am confident that the company can reach its targeted threshold of above 20% market share.
When a company gains market share, if they're not efficient, then it can lose its gains to a competitor that's more efficient. According to Rocket, they're way more efficient than the average mortgage company. As their loan volumes have grown over the past several years, they've shown success in scaling their business. This is proven by the number of loans per production team member per month metric (below).

Outside of mortgages, Rocket has a personal finance app that they obtained through its acquisition of Truebill. The best part about this business is that its annual recurring revenue (ARR) is over $100 million. Like the mortgages it holds, Rocket's premium membership plan for its personal finance app is also bringing more recurring revenue to the business. Investors love recurring revenue business whether times are good or bad.

Rocket has other business lines too, like providing auto and solar loans. There are many cross-selling opportunities for the company. While most of these non-mortgage businesses are small, over time, they will grow into something bigger.

But for now, let's appreciate that Rocket owns the entire home buying process. More money comes to them and little to no money goes to third parties when people buy a home through Rocket.

Conclusion
In sum, I believe that the:
  • large and consistent cluster insider buying
  • gains in market share
  • high efficiency
  • management's efforts to diversify revenues outside of mortgage origination
  • loans on Rocket's books
Rocket will create immense value for investors. While times are tough for the real estate market, Rocket has a strong balance sheet (current ratio of 5.03) that can help the company weather the tough times.
It's possible that Rocket will capitalize on these tough times to acquire its competitors at a lower price and acquire more market share from there. A contrarian move like that could be another reason why insiders continue to buy every dip in this stock.

Or maybe insiders simply like buying a great business at a great price.
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Fortune Magazine August 2000
In an article titled “10 Stocks to Last the Decade”, they mentioned Broadcom, Charles Schwab, Enron, Genentech, Morgan Stanley, Nokia, Norte Networks, Oracle, Univision, and Viacom. Described as a buy and forget portfolio.

I’d love to see a backtest for an even $1,000 into each stock. Maybe $AVGO , $ORCL , $SCHW , $MS , and $VIAC made up for the losers🤷‍♂️

I ignore the financial noise. Will read headlines and stock lists but do not put much effort or faith on what they say. Just use it as a source of new stocks to analyze if anything.
New Lows Today @ 10am
Visit highsandlows.substack.com to see more
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Leandro's avatar
$130.9m follower assets
Giverny Capital Asset Management Highlights
I read Giverny Capital Asset Management's Q1 shareholder letter over the weekend and some quotes were pretty interesting. First, let me give a bit of context on GCAM.

GCAM is a partnership between Canadian investment firm "Giverny Capital" and David Poppe. David Poppe was President and CEO of Ruane, Cunniff & Goldfarb, a RIA that's best known for managing Sequoia fund. GCAM is fairly new as it started in April 1st 2020. Since inception, the company has managed to provide nice returns (32.2% net) although it has not managed to beat the S&P 500 (34.5%). However, the team's prior track record is one of outperformance.

The company tries to invest in high quality companies where founders have significant stakes (of course, this isn't always possible)

Here's a list of GCAM's top 10:

$GOOG 9.1%
$ANET 6.5%
$PGR 6%
$SCHW 5.9%
$KMX 5.9%
$CSU.TO 5.6%
$SSNC 4.7%
$HEI 4.6%
$BRK.B 4.4%
$CACC 4.3%

Let's go with some of the quotes now!

On Q1's performance:

It was a rough quarter. I don't say that because stock prices declined. That happens. Volatility, after all, is what creates occasional dislocations in the market that allow long-term investors to buy great companies at attractive prices.

On commodities or energy cos:

GCAM doesn't own any energy or materials stocks. That's intentional. About 15 years ago, I did a fair amount of work on the emerging Canadian oil sands companies. I learned three lessons from this project that inform my investing at GCAM. First, never bet on any kind of Malthusian thesis about scarcity, as this is essentially a bet against human ingenuity. Second, no one in the oil industry knows what the price of oil will be in a year. Thus, oil companies spend tends of billions of dollars on capital investments with limited visibility into what the future return will be.Third, oil companies are like derivative securities: their success or failure depends more on the price of an underlying asset than it does on their management teams. Are these companies all run by subpar management teams? Of course not. But they are all ultimately hostage to the oil price.

On predictability of returns on capital and management:

What I am trying to do at GCAM is align with fantastic managers who control their own destiny. Or at a minimum, have more control of their own destiny. I would much rather invest in a business that earns predictably high returns and has a clear growth trajectory than in a business that could earn a superior return if a commodity price remains elevated.

My crystal ball is not better than anyone else's but I'd rather invest in obvious structural growers than probable structural decliners.

On Fed's actions:

The Federal Reserve seems reluctant to do its job, but it is clear that interest rates are going to have to rise at a a much faster rate to tame inflation. The next year or two likely will be bumpy.

On the worst performers of the portfolio:

If there is any good news, I don't believe this group suffered material impairments to their long-term earnings trajectory. Rather, relatively small earnings misses or reductions to ST guidance led to large stock declines.

On $FB spend on RL:

I can't say yet that these investments will pay off, but sales of Meta's Oculus headsets are healthy and reviews are enthusiastic. I feel certain that Meta CEO Mark Zuckerberg won't continue to spend so heavily on R&D if it produces no results.

On $FB health on ad market:

I've heard comments from two large advertising agencies recently that their budgets for Meta Platforms' properties are growing by double digit percentages this year, a signal that Meta remains an important advertising vehicle.

Roughly 2.8 billion people log onto a Meta-owned social media site everyday, and they stay for a while. That makes Meta the best advertising vehicle in the digital world.

On $FIVE:

Five Below arguably has the strongest growth profile in bricks-and-mortar retail and the stock is more reasonably priced after the recent correction. We're very confident in this business and expect to own it for a long time.

On $AMZN's vs $FB's capital spend (controversial):

Owning lots of airplanes to support a marginally profitable retail business does not seem as promising to me as trying to build the metaverse.

On portfolio management:

I don't like owning 1% positions as they consume research time and don't add much value to the portfolio when they do well.

On selling Topicus $TOITF:

It was less than 1% in our portfolio and not very liquid, partly because Constellation continues to own 60%. The company had a great first year, trading at a premium to its parent. We didn't think it was more valuable than $CSU.TO so we sold it.

On volatility going forward:

Given the war in Ukraine, soaring inflation, supply shortages and the expectation of sizable rate hikes by the Fed, I expect volatility to continue.

On timing the market:

The war in Ukraine is deeply disturbing, but market timing does not work and geopolitical events rarely create lasting market impacts. In any case, the best defense against economic uncertainty is to own high-quality, productive assets.
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Welcome to Earnings Season
Good morning contrarians! Stock futures are dropping along with bonds as investors gear up for a big week of earnings…

Today we’ll hear from Bank of America ($BAC), Bank of New York Mellon ($BK), and Charles Schwab ($SCHW).

Of course Twitter ($TWTR) is also worth watching after the company instituted a poison pill to ward off the efforts of Elon Musk over the weekend.

The state of affairs is discussed in more detail on this morning’s briefing and podcast, now live for premium subscribers:

3/21 - 3/25 Watchlist
As a little background of myself I am an options trader that focuses on trades around market structure.

The strongest sectors going into this week will be $XLF $XLK $XLC $XLY
I won't be trading those sectors themselves but I'll be taking their top holdings and comparing them to how they perform against $SPY in the recent days.

*While all plays are nice for equity I'll be hand selecting my favorite ticker from each section. Feel free to ignore the big list at each section and skip straight to the charts.

Currently my favorite plays will be longs within the FINANCIAL SECTOR
$BAC $WFC $JPM $MS $SCHW $BK are some great stocks to be looking at as we see strength coming in. I'll be picking up calls on demand zones while giving myself 2 weeks of time.

$BAC is holding breakout levels / demand zone very nicely. I'll likely be looking to add right on open assuming no gaps happen. I do believe with financials rotating in we can see financials climb pretty fast.
43c 04/01
45c 04/14

COMMUNCATION SERVICES

Personally my favorite is going to be $FB. Retail doesn't seem to understand that when a large cap runs, it RUNS. This can go on for much longer than expected. I expect small pullbacks but we just played $FB last week and had our cons go from $1.00 to $10.XX

However, do keep in mind we are testing supply zone right now. Although I expect a clean break and that we start making our way towards the gap fill.
220c 03/25
250c 04/14

$TWTR is seeing a breakout and some unusual volume imo. I took a stake in it for fun and as sentiment to Meta.
40c 03/25

$DIS $NFLX are coming along with sentiment to the rest of the market, but still just on watch. Not quite seeing the strength I want.

TECHNOLOGY
I can chart these upon request but honestly there are so many other's charts out there on these stocks. These are all going to be relatively strong right now with $QQQ pushing up.
$NVDA has NVDA day coming up, but I'd rather be playing the sentiment. $AMD is most notable here due to how close it is to breaking out.

CONSUMER DISCRETIONARY

$NKE has earnings and is seeing momentum on it. Would love to pick up calls right on Monday open and ride the IV til close. Otherwise you can choose to lotto calls and reduce your risk with spreads. Personally going to be swinging 2:1 CALL:PUT spreads.

$MCD is seeing buyers behind it once again and I'm ready to enter long. Going to be looking for retest of demand zone and entering when that happens. We do have a gap fill at the bottom but I don't believe we'll fill it. In the case that we do break demand zone I'll sit patiently and wait til we build a base.
250c 04/14

$HD still seeing strength is close to gap filling. I've actually been in this guy since the bottom, however feel free to daytrade this one. On successful retest of 336 it looks good for calls and ready to gap fill.
350c 03/25

Still working on my formatting, but hoping I was properly able to convey what I wanted!
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"Robinhood Readies Feature That Lets Users Lend Out Their Stocks" - Bloomberg
I find it interesting that $HOOD is allowing its users to make passive income from their stocks by lending entire shares of stock to other institutions. Interestingly, I didn't know that other platforms like E-Trade (owned by $MS) and $SCHW offer this type of program to their clients.

This program allows the WSB community and other retail investors to profit off of the growth in short selling. I bet that owners of $TSLA and $QQQ shares will see immense demand for their shares from short sellers.

What are your thoughts on this? Will it create meaningful growth in revenue for Robinhood? Will it be better for the market as this move is a step towards improving liquidity in the stock market?

Earnings Analysis for Banks
The big banks work with many companies in many sectors, so even if you don’t own any stocks in the banking sector, it’s always a good idea to keep track of what the banks are reporting, because they give you an idea of what to expect for the rest of earnings season.

Goldman Sachs reported this morning and shares dropped 8% because of surging expenses and an equities trading slowdown. $GS

Bank of America $BAC and Charles Schwab $SCHW reported as well.

If you you want to know what to look for when banks report earnings, @ayeshatariq wrote a great primer. Start here! 🏦 ⤵

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