Giverny Capital Buys Charles Schwab, Citing Deep Valuation Discount
Giverny Capital Asset Management made Charles Schwab its third-largest holding, betting that the brokerage's projected 56% earnings growth will close a significant valuation gap against the broader market.
Giverny Capital Asset Management increased its position in The Charles Schwab Corporation (NYSE: SCHW) during the second quarter, making the financial services firm its third-largest holding. The investment manager highlighted the stock in its Q2 2026 investor letter as a prime example of a high-quality company whose share price has detached from its underlying earnings growth.
The fund's conviction comes amid a highly bifurcated market environment. The S&P 500 has risen 10.2% in the first half of 2026, yet 210 stocks within the index lost value during that period. Giverny noted that tech giants are currently absorbing investor optimism surrounding artificial intelligence, leaving established financial leaders behind.
Schwab's fundamentals tell a different story than its recent stock performance. The firm earned $4.87 per share in 2025, and the Wall Street consensus anticipates earnings per share of $7.62 in 2027. This trajectory represents a two-year growth rate of 56%, or approximately 25% per year.
Despite these projections, Schwab shares were down 8% year-to-date as of June 30, trading at $92.27. At that price, the stock traded at just 12 times the 2027 earnings estimate, a steep discount to the broader index, which trades at more than 20 times forward estimates.
The valuation gap presents an opportunity for value-oriented investors as market leadership potentially broadens. By July 20, Schwab shares had rallied, closing at $102.54 to give the company a market capitalization of $178.33 billion. The stock posted a one-month return of 10.06% leading up to that close.
Giverny's strategy of targeting reliable earnings compounders over AI-driven momentum plays currently trails the broader market. The firm's model portfolio returned 13.70% in the second quarter, compared to the S&P 500's 15.20%. Year-to-date, the portfolio has gained 5.89%, while the index has increased by 10.21%.
The asset manager remains steadfast, arguing that extreme market dispersion has created attractive entry points into reliable businesses. "We own Index constituents such as The Charles Schwab Corporation (NYSE:SCHW), JP Morgan, Mastercard and Progressive Corp. that continue to grow their earnings per share at healthy rates and in some cases at higher rates than usual, but whose stock prices are lagging," the letter stated.
