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Education Stocks A Wise Investment

By Matthew McCall

Tickers in this Article: STRA, DV, EDU, APOL

With the unemployment rate increasing this year and more gloom possible, many Americans are no doubt considering going back to school to better their resumes. There is a laundry list of educational companies that offer classes to adults with all types of schedules. Even though money may be tight, investing in yourself through higher education is never a bad idea.

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Improving Yourself
The trend toward more education was very prevalent during the tech bubble that cost many Americans their jobs, and education was one of the few sectors to make it through the 2000 stock market crash unscathed.

I do not equate what the market is dealing with now to what happened during the tech bubble, but the reaction from investors and the unemployed may be the same. Investors are looking for safe stocks and education stocks look like they will survive relatively unscathed yet again. (For more on finding out your risk tolerance, check out Determining Risk And The Risk Pyramid.)

Potential Winners
The education & training sector has been mixed as a few stocks are sitting on the verge of breaking out to new highs and others are hitting lows. This makes the sector a stock picker's delight.

Strayer Education (Nasdaq:STRA) - The untraditional university has 50 campuses in over a dozen states on the East Coast and believe it or not, has been in business since 1892. Currently the university has over 36,000 students that are studying for both associates, bachelors and masters degrees. There is also the online arm of the company that has approximately 25,000 students enrolled. Strayer isn't stopping there, in 2007 the company expanded with eight new campuses. What I like about Strayer is its diversity of offerings, which range from a 12-month course on Oracle database to an MBA. The diversity will keep the enrollment increasing in both good and bad.

DeVry Inc. (NYSE:DV) -DeVry offers similar degrees as Strayer, but it is even more diverse with a medical and veterinary school in the Caribbean, a nursing school, and the Becker Professional Review programs that are used by financial professionals. The stock has not done as well as Strayer's, but has been able to finish the first six months of 2008 in positive territory up about 2% during a time when the S&P500 saw a drop of about 14%, proving to be a strong stock in a weak market. The one caveat I have with DeVry is a federal investigation into its recruiting practices launched in April 2008. The company is cooperating fully and the stock has held up well since the announcement. (Discover how to find bear-proof stocks in Recession-Proof Your Portfolio and Four Tips For Buying Stocks In A Recession.)

Apollo Group (Nasdaq:APOL) - The behemoth of the sector, Apollo has more than 160 learning centers and 100 campuses to go along with their online offerings. In total the company has more than 300,000 students enrolled in its programs. It is also diversified into other niche areas with The College for Financial Planning Institutes and Institute for Professional Development; both offer exposure to areas its competitors lack. During the first week of July, Apollo announced strong earnings for the quarter that sent the stock higher by 18% in one day. Revenue increased 14% to $835.2 million and 6% rise in net income to $139.1 million from a year earlier. This was due in large part to enrollments increasing by 11%. The issue Apollo has had for years is shaky management and accounting practices, if it can ever overcome this, it could become the leader it was in the early 2000s.

New Oriental Education & Technology Group (NYSE:EDU) - What about the Chinese education market? EDU is the largest provider of private education services in the country through 35 schools and over 100 learning centers. Many Chinese students are clamoring to learn the English language, and EDU is looking to profit from the over $70 billion that was spent on education in China in 2007 according to Euromonitor International's research. The company is priced with a high multiple (P/E ratio of 54), but with quarterly revenue growth of 34% it could be sustained. In the end, investors must be aware of the volatility possible when owning EDU.

Educate in Good or Bad Times
Now nearly everyone is seeking out higher education, whether it be your traditional university or a trade school. Because of the worldwide competition for jobs, education is very important in furthering yourself in society. This is one reason the education stocks have the potential to grow in both bull and bear markets.

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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