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Time To Educate Your Portfolio
The unemployment rate remains near 10% in the U.S., and the number of people out of work is in the millions. As the unemployed fight for jobs, there is one way for them to stand apart from the competition - education. The unemployment rate for Americans with a bachelor's degree or higher is sitting at 4%, well below the unemployed without a college degree.
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As an investor, whether employed or not, your goal is to put your money in stocks that offer a return on your investment. One sector to consider is the education stocks due to the increased demand from the unemployed as they look to increase their education level. There are also the people that are willing to learn an entirely new skill and will pay for the training through for-profit education companies. According to Business Week, for-profit higher education companies have tripled their enrollment to 1.4 million students in the last decade.
The Educators
One of the best-performing stocks in the sector this year is Grand Canyon Education (Nasdaq:LOPE), an accredited university that has over 37,500 students. With 92% of their students taking classes online it keeps the overhead low because it does not have the old brick and mortar costs. Another amazing statistic is that the company generated 82% of its revenue from federal financial aid in 2009. When the company reported quarterly earnings in mid-February, it guided the first quarter below analyst's estimates and restated financial results for the last few quarters. The stock initially took a hit on the news, and fell as low as $19.25 on February 19, 2010 before rallying in the following weeks to a new all-time high above $23. The stock does have a fairly high P/E ratio of 39, but with earnings growth expected to be over 50% in the coming years the PEG ratio sits at an attractive 0.63.The mean estimate for earnings in 2011 is $1.60 per share, versus just 17 cents in 2008. (For more, see Move Over P/E, Make Way For The PEG.)
Another education stock sitting at an all-time high is Lincoln Educational Services (Nasdaq:LINC), which reported record revenue for the fourth quarter of 2009 in early March. For the year revenue was up 47% and diluted earnings per share surged 134%. The company expects revenue to increase by a modest 17-19% in 2010, with earnings per share rising as much as 37%. Similar to LOPE, Lincoln is attractive priced with a P/E ratio of 17.3 and a PEG of 0.66. Based on 2011 estimated earnings the stock is trading at a P/E ratio under 10.
Not to be outdone are DeVry (NYSE:DV) and Strayer Education (Nasdaq:STRA), also sitting at all-time highs as of March 5, 2010. DeVry owns a number of colleges that include DeVry University, Ross University and Keller Graduate School of Management, to name a few, and has 94 locations in North America. Strayer has 78 campuses throughout the U.S., as well as online classes that it provides to its 54,000 students, as of the end of 2009. Of the two stocks, DeVry has a PEG ratio under 1.0, but Strayer is trading with a PEG ratio of 1.09, which is still attractive, but relatively speaking it is the "most expensive" of the group. (For more, check out PEG Ratio Nails Down Value Stocks.)
Education Overseas
For the investors who have a thing for China, there are a number of Chinese education companies that trade on American stock exchanges. The largest is New Oriental Education & Technology Group (NYSE:EDU), with a market cap of $2.9 billion. The performance of EDU has not been as stellar as its American peers, and, based on fundamentals is not as attractive, however there is huge growth potential due to its location in China.
The Bottom Line
The combination of attractive fundamentals and bullish technical readings on the charts has the education stocks on most investors' radars. With that being said, the best approach is to look for weaknesses if your strategy is to put money to work in the sector. (For more, see How Education And Training Affect The Economy.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
As an investor, whether employed or not, your goal is to put your money in stocks that offer a return on your investment. One sector to consider is the education stocks due to the increased demand from the unemployed as they look to increase their education level. There are also the people that are willing to learn an entirely new skill and will pay for the training through for-profit education companies. According to Business Week, for-profit higher education companies have tripled their enrollment to 1.4 million students in the last decade.
The Educators
One of the best-performing stocks in the sector this year is Grand Canyon Education (Nasdaq:LOPE), an accredited university that has over 37,500 students. With 92% of their students taking classes online it keeps the overhead low because it does not have the old brick and mortar costs. Another amazing statistic is that the company generated 82% of its revenue from federal financial aid in 2009. When the company reported quarterly earnings in mid-February, it guided the first quarter below analyst's estimates and restated financial results for the last few quarters. The stock initially took a hit on the news, and fell as low as $19.25 on February 19, 2010 before rallying in the following weeks to a new all-time high above $23. The stock does have a fairly high P/E ratio of 39, but with earnings growth expected to be over 50% in the coming years the PEG ratio sits at an attractive 0.63.The mean estimate for earnings in 2011 is $1.60 per share, versus just 17 cents in 2008. (For more, see Move Over P/E, Make Way For The PEG.)
Another education stock sitting at an all-time high is Lincoln Educational Services (Nasdaq:LINC), which reported record revenue for the fourth quarter of 2009 in early March. For the year revenue was up 47% and diluted earnings per share surged 134%. The company expects revenue to increase by a modest 17-19% in 2010, with earnings per share rising as much as 37%. Similar to LOPE, Lincoln is attractive priced with a P/E ratio of 17.3 and a PEG of 0.66. Based on 2011 estimated earnings the stock is trading at a P/E ratio under 10.
Education Overseas
For the investors who have a thing for China, there are a number of Chinese education companies that trade on American stock exchanges. The largest is New Oriental Education & Technology Group (NYSE:EDU), with a market cap of $2.9 billion. The performance of EDU has not been as stellar as its American peers, and, based on fundamentals is not as attractive, however there is huge growth potential due to its location in China.
The Bottom Line
The combination of attractive fundamentals and bullish technical readings on the charts has the education stocks on most investors' radars. With that being said, the best approach is to look for weaknesses if your strategy is to put money to work in the sector. (For more, see How Education And Training Affect The Economy.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Matthew McCall
Matthew McCall is the president of Penn Financial Group, LLC, a registered investment advisor. He also publishes two newsletters, The ETF Bulletin and The PFG Letter as well as other educational material. As a registered investment advisor, he manages clients' investments based on their specific goals and objectives.
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