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Gold Digger started his career in financial services with Bloomberg LP in New York. He played a key role in fixed income analysis for Bloomberg professional services with specific focus on corporate and municipal bond markets. Currently he is the Chief Investment Officer of a private wealth... More
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  • Private education sector is a buy after recent sell-off 0 comments
    Aug 5, 2010 2:25 PM | about stocks: CECO, DV, APOL, ESI, STRA
    Private education sector stocks have sold off heavily due to government regulation fears and huge short interest amassed by some hedge-funds. We have a senate committee these days on almost every aspect of life but unfortunately they can't figure out a way to improve the real-life of millions of people in this country. All these senate committees do is create money for the members of Congress. So it's not surprising that we are seeing news everyday of unethical behavior from members of Congress. But that apart, Congress can't do more harm to this country than by interfering with the private and for-the-job educational institutions. In fact countries like India and China have government sponsored technical and job-oriented training institutions. India has ITI (Indian Technical Institution, not to be confused with IITs, premier engineering institutions) and GTI (Government Polytechnic Institute). Of course, not every single graduate from these colleges in India gets a high paying job or even gets a job. But it is essential to provide people training that will help them in finding a job. In the lack of such government system, I think private institutions in this country are filling the gap that might make this country more productive than just consumer focused.
    Evaluating these institutions based on job placements or salaries is a huge mistake. Because both these factors are highly variable and also starting salaries are very different for an entry level technician as compared to the one with 10 years of job experience. Of course, like any other private company with competition in the sector we are bound to have advertising that promotes a given institute in a certain way. It is true with any advertising campaign. How many people do really verify that their shampoo has all the fruit extracts that it advertises and if it is really helping their hair to shine?
    I find hearings of senate and congressional committees to be silly to say the least. Unfortunately, political system in the country right now is taking all steps to do maximum harm with their misplaced priorities. That being said, I think such scenario creates opportunity for investors who can separate wheat from chafe.
    For-profit or private education sector is presenting some of such opportunity after fear dominated sector wide sell-off. Most of the stocks like Apollo Group (NASDAQ:APOL), Career Education (NASDAQ:CECO), American Public Education (NASDAQ:APEI), ITT Education (NYSE:ESI) and Strayer University (NASDAQ:STRA) are down about 20% in recent months. I take special note of high quality names like ESI, APOL and STRA. First two are trading at P/E of 8-10 and STRA at 26. Cash-flows look very healthy. In fact if these institutions are forced to reduce fees then at the same time their loan write-offs will also go down as students will have to take lesser loans amounts thus reducing strain on bad loans for these companies. Lower fees will also attract more students to join these programs. After recent sell-off, I am turning bullish on these stocks and will advise investors to pick some high quality names in the sector. DV, ESI, APOL, CPLA and STRA are good picks based on their earnings outlook and quality of educational material. And recessions are always an encouraging time for people to look for enhancing their skills. Investors should get long on selected stocks in this sector.

    Disclosure: No position at the time of writing in any stock mentioned in the article. I'll be creating long position in selected names at a good entry point.
    Stocks: CECO, DV, APOL, ESI, STRA
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