July 22, 2022, The Charles Schwab Corporation (NYSE:SCHW) and Extra Space Storage Inc. (NYSE:EXR)
These two uniquely positioned companies could be the best stocks to buy now amid rising rates.
It’s been a strong week for stocks buoyed by stronger-than-expected earnings. With the indices at their highest level in roughly six weeks, on Thursday (July 21, 2022), the Dow Jones rose 162.10 points (0.51%). The S&P also gained 0.99%, while the Nasdaq surged another 1.36% and broke past the 12,000 level again. But fasten your seatbelts. Next week the Fed could announce another 75 bps rate hike, and a 100-point hike isn’t out of the question. In this environment of rising rates, The Charles Schwab Corporation (NYSE:SCHW) and Extra Space Storage Inc. (NYSE:EXR) are two of the best stocks to buy now.
Charles Schwab is a prominent player in the capital markets and provides a wide range of financial services. It was one of the original e-brokerages and offers wealth management, advisory, and electronic trading products and services. Most importantly, it is one of the best stocks to buy now because higher interest rates offset its low fees. Look at Schwab’s latest earnings report, fundamentals, growth projections, and potential 55+% upside based on a recent Morgan Stanley price target as evidence.
Extra Space Storage is another of the best stocks to buy now and an unconventional way to play on rising rates. It’s also a way to acquire some of the most consistent dividends in the market. Yet, as one of the largest self-storage companies in the U.S., you’ll also get exposure to one of the most in-demand real estate sectors. Perhaps that’s why analysts give the stock a double-digit upside, despite surging 11.95% since last month’s lows.
Investors can choose from a lot of stocks. However, it’s essential to be very selective. Let’s explore why these two picks may be the best stocks to buy now.
The Charles Schwab Corporation (NYSE:SCHW)
Morgan Stanley’s latest price target gives this brokerage 55+% of upside.
Charles Schwab remains one of the most prominent enterprises in the U.S. brokerage industry. From the start, it has been at the forefront of the retail investing boom.
It’s built itself into a juggernaut in the field with $4.04 trillion in client assets and 12.3 million active brokerage accounts today.
Moreover, it’s a well-respected and award-winning firm. Between 2021 and 2022, it was recognized as:
- The only broker to rank in the top three for Investor Business Daily’s Best Online Brokers for 10 straight years.
- Investor’s Business Daily – Most Trusted Financial Companies 2021 – #1 Overall
- Stockbrokers.com 2021 #1 New Tool and #1 IRA Accounts
- NerdWallet 2021 Best Broker for IRA Investing and Best Robo-Advisor
It’s probably not shocking to see what a significant outperformer it’s been over the last decade.
As the summer heats along with interest rates, it is one of the best stocks to buy now. It’s uniquely leveraged to rising rates and trades at a very buyable level. Based on the earnings it just reported, excellent fundamentals, and growth prospects, it’s frankly a no-brainer.
Schwab Just Beat Q2 Earnings Estimates and Faces Outstanding Growth Prospects
On Monday (July 18, 2022), Charles Schwab reported Q2 earnings and crushed bottom and top-line projections. EPS came in at $0.97 or $0.06 better than analyst estimates. In addition, revenue came in at $5.09 billion, well above the consensus estimate of $5.03 billion. This also represents a 12.36% year-over-increase from $4.53 billion.
On top of these figures, Schwab added over 1 million new brokerage accounts. So much for the market scaring people away.
Why did figures come in like this? Why are Schwab’s earnings expected to grow an astounding 27.39% in the coming year? Why could its revenue see a 19.9% 5-year CAGR? And why is its net income forecast to grow 39.0% at a 5-year average of 12.7%?
The answer is simple. Higher interest rates offset lower fees. These rate hikes are nowhere near over. That is why Schwab is one of the best stocks to buy now, and its growth trajectory may only be getting started.
Schwab Offers Strong Fundamentals and Dividends at a Relative Discount
While Schwab may not be the most beaten-down undervalued name in the market, it’s still trading at a relatively enticing entry point. It trades -34.06% below its high, has a forward P/E ratio of 15.6x, and a PEG of 0.76.
To make the case even more decisive for Schwab as one of the top stocks to buy now, its valuation also implies a solid free cash flow yield of 7.6%.
However, it doesn’t stop there. Schwab has rock-solid fundamentals and dividends that most stocks in an environment like this would envy.
While Schwab’s 13.6% ROCE is solid, its 96.9% gross margin and 45.2% operating margin are outstanding and showcase its profitability and operational strength.
While it doesn’t necessarily have a long track record of consistently hiking its dividend, Schwab has a solid 1.3% dividend yield. Its current positioning and payout ratio also indicate it could grow 11.1% at a 20.8% 5-year CAGR.
A Recent Morgan Stanley Price Target Sees Schwab Moving Over 55%
TipRanks notes that based on 12 Wall Street analysts offering 12-month price targets in the last 3 months, SCHW’s average price target is $85.00. This considers its street-high price target of $100.00 and its low forecast of $75.00. The average price target represents a 33.06% upside from July 21, 2022’s closing price of $63.13.
The day after Schwab reported earnings (July 19, 2022), Deutsche Bank boosted its price target from $81.00 to $82.00. The week before (July 13, 2022), though, Morgan Stanley also maintained an OVERWEIGHT rating and tacked on a $98.00 price target. While slightly off the street-high of $100, this still represents an outstanding upside of 55.24% from July 21, 2022’s close.
SCHW’s year-to-date low and high are $59.35 and $95.74, respectively.
Extra Space Storage Inc. (NYSE:EXR)
This self-storage REIT has a double-digit upside and pays some of the market’s most mouth-watering dividends.
REITs are a solid place to look during uncertain times like the one we’re in because of their consistent yields. As REITs are legally required to distribute 90% of their taxable income as distributions to shareholders, they offer some of the most consistent dividend payments in the market.
They also add easy, efficient, and convenient real estate exposure without buying physical assets.
Rate hikes in the U.S. and inflation make a strong case for self-storage REIT Extra Space Storage Inc. as one of the best stocks to buy now. With roughly 1,900 self-storage sites in 40 states, it is one of the country’s most prominent self-storage management firms.
So no matter what happens, it’s at the forefront of a booming real estate sector. Globally, the self-storage market was valued at $48.02 billion in 2020 and is expected to reach $64.71 billion by 2026 at a 5.45% CAGR.
With how this company is fundamentally managed, it stands above many other REITs and competitors.
Outstanding Earnings and Increasingly Lofty Growth Projections
EXR’s Q1 2022 earnings report crushed bottom-line estimates by an astounding $0.66. EPS came in at $2.01 compared to the forecasted $1.35.
Revenue also came in at $379.81M and beat estimates by $10.93M.
But what’s most telling is that, year-over-year, EXR increased same-store revenue by 21.7% and same-store net operating income (“NOI”) by 27.6%.
EXR won’t announce its Q2 earnings for about a week and a half. However, there are certainly winds blowing in its favor, and growth projections are getting loftier and loftier.
First, in the last 90 days, EXR received 11 FFO upgrades compared to 0 downgrades. Earnings for Extra Space Storage are also expected to grow by 6.30% in the coming year.
Furthermore, on the top line, EXR’s revenue is projected to grow at a 9.9% 5-year CAGR.
-23.34% Below Its Highs, EXR is Catching Fire Yet Still Trades at a Discount With Outstanding Fundamentals
EXR currently trades roughly -23.34% below its 2022 high of $228.84.
With the stock amid an uptrend rising 11.95% since last month’s lows, EXR remains at an attractive level with the potential to increase even further based on its solid fundamental indicators. Its 0.71 PEG ratio also indicates the stock is trading at a cheap level relative to growth prospects.
Furthermore, EXR’s valuation implies an excellent 4.2% free cash flow yield. It also has a nearly perfect 8 out of 9 Piotroski Score, indicating healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
Its margins add further context to this impressive score, such as its
The Dividend is So Strong, It Deserves its Own Section
EXR, even for a REIT, pays outstanding dividends. It delivers a 3.47% dividend yield and has increased it for 14 straight years. That alone is why it’s one of the best stocks to buy now.
Based on its track record, investors could see this payout grow another 50.0% at a 9.9% 5-year CAGR.
After all, just last September, Extra Space hiked its quarterly dividend by 25%.
EXR Has an Average Analyst Upside of 12.99%
Over the last 3 months, 9 Wall Street analysts offered 12-month price targets for EXR. EXE currently has a street-high price target of $234.00, a low of $156.00, and an average of $198.22. Its average price target represents a 12.99% upside from July 21, 2022’s $175.43 closing price.
EXR’s year-to-date low and high are $156.70 and $228.84, respectively.
