Need for Student Loans Should Boost First Marblehead Stock

Our last stock pick, Washington Mutual (WM), back on July 14 for our Stock Picks Portfolio, gave us a great head start with a 3-day return of 65.94%.

So here we are again finding a great bargain. First Marblehead (FMD) provides outsourcing of private student loans. This stock was a success trading at over $40 a share before the credit crisis and the subsequent collapse of financial stocks. It bottomed at a little over $1 in July of 2008, and after announcing an equity investment by Goldman Sachs (GS) Capital Partners and the return of company co-founder Dan Meyers, the stock skyrocketed to $5, before settling down, and now trades around $4.

I believe that with the eminent reversal of the credit scare in the next couple of years, the expected rise in student enrollment due to a weakening economy, the financial relationship with Goldman Sachs, and the return of the founder, along with his compensation of only $1 annual salary with the potential of a larger salary only after taking the company back into profitability, First Marblehead may reclaim its dominance in private student loan outsourcing.

I am watching the expected conference call that the company previously announced would take place in September. What Mr. Meyers says or doesn't say during that call may determine the short term return on this stock. It could easily double or drop by half right after the conference call. However, longterm this stock may regain some of its luster, and could potentially hit double figures by the start of the Fall 2009 school session.

FMD made our Stock Picks Portfolio at $3.90 yesterday, and will be tracked. Ideally, I would like to hold on to it until 2010, but if a sudden large spike in the price takes place, I am more than happy to secure a quick profit if large enough.

Disclosure: Author holds a long position in FMD

Comments

[Tim Doyle:]

How about providing some analysis or examination of company fundamentals in light of the recent GS capital infusion? All I see is lots of conjecturing and a lack of details to back up your opinions. Article is not worthy of a posting on Seeking Alpha.

2008 Sep 09 08:23 PM

[Ryan:]

Tim, I agree 100%. Nothing of substance here. Also, the third paragraph is a huge run-on sentence.

2008 Sep 10 10:59 AM

[captainccs:]

>>>Our last stock pick, Washington Mutual (WM), back on July 14 for our Stock Picks Portfolio, gave us a great head start with a 3-day return of 65.94%.

I hope you took your profit because that was a dead cat bounce. WM is now down 15% from July 14th.


>>>I believe that with the eminent reversal of the credit scare in the next couple of years...

I wonder what makes the reversal of the credit scare so "famous and respected?" You probably meant "imminent" but several eminent market commentators think otherwise. But if did mean "imminent" then it should not take a couple of years as you say. Imminent means soon, not two years down the line. So maybe you are fishing for another word. How about "inevitable?" Let's try it out:

>>>I believe that with the inevitable reversal of the credit scare in the next couple of years...

Yea, that sounds better. :)

2008 Sep 14 07:31 AM

[DailyTopSto...:]

Thanks guys, for the clever and very helpful criticism of an 'article' that was posted by me on my blog as a 'blog post', ie. quick, informal and opinionated.

captainccs, YES, we took that profit. if you care to click on the links in the article, you would see that. and thank you so very much for the smart, funny, and condensending little spelling lesson. well appreciated.

I guess the lesson here is to check my spelling and watch out for sentences that drag on. Those are all great habits that I am sure each one of you practices every day, and that is why all of you are so successful that you have plenty of time on your hands to sit down and sift through irrelevant little grammatical errors posted all over SA. Maybe your beef should be with SA editors. Oh wait! 'beef' is a slang. sorry!

2008 Sep 14 07:19 PM

[Fulldeck:]

Ummm... that would be "condescending", not "condensending". No need to thank me. (Hey, cap'n!)
FD

2008 Sep 15 11:56 AM

[me3tv:]

Funny but also astute replies. I have some of this a 3.20 and feel a bit encouraged by FMD's positioning for a run on student loans as the recession kicks in. Maybe some extra courses in grammar and spelling will be in demand. After today, I wonder if I should buy some more.

2008 Sep 15 04:27 PM

[BSexposer:]

Even by the poor standards of SA, this "article" sucks. Note to readers - when the author doesn't even know the difference between "eminent" and "imminent" and can't spell the word "condescending" correctly, should you really be taking the person's investment advice? I don't think so. This "article" is typical of the trash that is posted on this website - uninformed, complete lack of fundamental analysis, bogus in the extreme (if you took the advice and bought, you'd now be down almost 50%), and the "author" even has the nerve to post snide replies to criticisms posted in response to the "article". Unbelievable.

2008 Sep 16 11:56 AM

[porthos:]

this analysis is saying the company can easily make money out of PSLs with deficit rates approaching 10% and delayed payment of principal and interest for up to 4 years?Any reason why they should not be able to set up a credit line for billions of dollars to originate loans and reap the spreads of 5%-6%.

...or maybe you are saying they can make a living from administrative and other business. That was a brisk $1.9 million last Q

...but there is always the imminent return of the asset backed securities market and the company's return to their most profitable line of business-collecting up front fees for facilitating securitizations to bring FMD back.

Actually it isn't exactly clear from the analysis where FMD is going to make money--something that has puzzled me since its collapse. Would appreciate any insight--it has me stumped. I would like to find a reason to buy at these prices.

2008 Sep 16 10:56 PM

[porthos:]

Well the investor briefing gives no indication there will be any return to profitability in the near term. No way to make money that I see. Still want to buy it? And how far out til they can return to their core competency which was receiving huge fees up front for setting up trusts. Does not seem be a lot of profit spun out by facilitating loans based on the TERI data base. Last Q was pretty slow

2008 Sep 26 12:24 AM