Saturday, February 28, 2009

Volume 3, Issue #15

Also in Today's Issue...

The minutes of the Fed's late January Federal Open Market Committee (FOMC) meeting provide some grim reading. Fed members drastically lowered their expectations for U.S. economic growth in 2009 and 2010 and indicated a great deal of uncertainty as to the timing and strength of any recovery.

One of the most discussed issues: U.S. unemployment. The Fed's latest outlook is for unemployment to rise to 8.5% to 8.8% from today's reading of 7.2%. But even that projection may prove optimistic -- some Fed members are projecting unemployment to peak near 10%.

That's bad news for the economy in general and for many market sectors. But there is one sector that has historically benefited handsomely during periods of rising unemployment.

Working-age adults face a number of risks in today's market. Many will be laid off as companies seek to reduce their costs. But, even those that keep their jobs face the prospect of underemployment -- they'll take on lower-paying and less-skilled work just to get by.

But there is an alternative -- many erstwhile job-seekers decide the recession is a great opportunity to return to school to learn a new trade or earn a more advanced degree. Some decide to quit work entirely to pursue an education while others simply attend part-time. The result: admissions tend to spike during recessions; which is great news for for-profit education companies.

The table below offers a list of some of the largest and best-positioned for-profit education providers in the U.S. And in the text that follows my staff and I profile one of our favorite in the group.
 

Corinthian Colleges (Nasdaq: COCO, $19.70) 
COCO has over 100 campuses across the U.S. and two distinct brand names, Everest and WyoTech. Everest offers diploma and associate degree programs in fields like accounting, business administration, medical assistance and paralegal. WyoTech offers career-oriented programs in fields like automotive, HVAC and plumbing.

Catalyst(s): The main driver of growth for COCO short-term is the weak economy and job market driving more students back to school. COCO could benefit from this trend even more than most as it traditionally has focused on cheaper and shorter-term associate and employment-related degrees. A quick glance at quarterly results for Apollo and other for-profit educators shows that enrollment growth for these cheaper degrees is even faster than for bachelor's and master's degree programs.

In addition, COCO's students are eligible for the same student financing programs as students at any other university. In fact, more than 85% of COCO's revenues come from federal aid and guaranteed loans. This means that COCO can raise prices on its courses without angering students or slowing enrollments -- the U.S. government shelters students from most of these increases. This also means COCO will continue to benefit from rising government spending on education.

Competitive Advantages: COCO's focus on degrees in the healthcare, automotive and criminal justice fields is a big positive as demand for workers in these industries tends to hold up well during recessions. While other for-profits offer programs in similar fields, COCO has an established reputation in these markets and has a sizeable force of job placement advisors with experience placing students in these fields.

Valuation and Outlook: COCO suffered after the tech bust of 2000 as demand for enrollment in its information technology related programs dried up, impacting one of its fastest growing segments. But the company has been turning around its operations, focusing more intently on other in-demand markets like healthcare and automotive.

My staff and I also like the company's decision to consolidate its dozens of brands into two -- WyoTech and Everest. This move should serve to cut costs. Trading at less than 19 times forward earnings and with a long-term growth rate of +24%, COCO is one of the cheapest for-profit education firms around on a price-to-earnings to growth basis.


Good Investing!




Paul Tracy
Editor
StreetAuthority Market Advisor

This is just one of the many investing ideas you will find in Paul Tracy's newsletter -- StreetAuthority Market Advisor.  This highly diversified newsletter covers income investments, undervalued stocks, aggressive growth plays, international investments, exchange traded funds (ETFs), and just about everything in between to help you profit in these tough economic times. 

About Paul Tracy

Paul Tracy co-founded StreetAuthority.com and became the firm's Chief Investment Strategist in 2001. He also co-founded TopStockAnalysts.com in 2006. Prior to that he spent several years as Managing Editor at a multi-million dollar financial publishing firm with over 150,000 subscribers. In addition to his role as managing editor and lead financial writer, he was also responsible for equity research and managing a team of seasoned professional financial writers, researchers and market commentators.

Paul's previous experience includes a position at Robert W. Baird & Co.'s full-service brokerage operations as well as economic research work on a Money and Banking project funded by the National Bureau of Economic Research. He has also spent time doing outside consulting and research for the University of Virginia, has appeared as a guest expert on several prominent financial radio shows, and has been a featured speaker at various investment conferences across the U.S.

Paul graduated with a B.S. in Finance and Management from the McIntire School of Commerce at the University of Virginia.

To learn more about Paul Tracy's premium investing newsletter -- the Market Advisor -- please visit this link.
 

TopStockAnalysts
http://www.TopStockAnalysts.com
839-K Quince Orchard Blvd. 
Gaithersburg, MD 20878-1614

P.S. -- If you're not already a subscriber to one of StreetAuthority.com's premium investing newsletters, which include a wealth of additional information and specific investing guidance that you won't find anywhere else, then please visit the following page to learn more: http://www.StreetAuthority.com/subscribe.asp