Education Stocks: Opportunity Amid Unemployment

October 27, 2009

Welcome to another edition of Stock of the Week, a FREE weekly message where I give you my in-depth analysis on the stocks that matter to you most—with no mysteries and no strings attached. Just my take on the stocks everyone is talking about. Stock of the Week is designed to give you the information you need to make sound investment decisions, and will arrive in your email box every Tuesday after the market closes. (View complete e-letter archive here.)

Today, I’ll highlight two top education stocks—Strayer Education (STRA) and Corinthian Colleges (COCO) and explain why I think both stocks are good buys before they release quarterly earnings reports on Thursday, October 29.

Education stocks in general are good buys right now, since unemployment remains high. Workers continue to head back to school for job retraining or to change careers. Though an economic recovery is indeed taking place and the new bull market has arrived on Wall Street, unemployment remains a lingering challenge. Stocks like STRA and COCO are industry leaders that provide a crucial service helping out-of-work Americans get back on their feet or helping existing employees become better and more efficient at their jobs.

These Education Stocks Know How to Profit

In last week’s edition of Stock of the Week, I offered two healthcare picks profiting from the current focus on healthcare reforms. I pointed out that while some companies could be shaken up by changes in healthcare, there are a few picks out there that will seize the new opportunities and tap into big profits.

That’s the same approach I’m taking with this week’s recommendation of Strayer Education (STRA) and Corinthian Colleges (COCO). There’s no denying that unemployment remains one of the lingering problems from the recent recession, and that high jobless rate and low consumer confidence are hurting many stocks. But this isn’t true for all stocks. If fact, as I’ll show you today, some picks like STRA and COCO are tailor-made for these current conditions and are seeing booming sales as a result.

Let’s take a closer look at the current strength and future growth potential of these picks:

Strayer Education (STRA)

Current Strength: Strayer Education is doing well because of its focus on nontraditional students. STRA largely enrolls working adults—not 20-somethings transitioning from high school to college. The company has 50 campuses in 11 states throughout the eastern U.S., but offers a wealth of Internet-based classes in which more than two-thirds of its 31,000+ students are enrolled. From two-year degrees to master’s degrees, Strayer serves a wide variety of Americans seeking to polish their résumé or take their career to the next level. Strayer is doing quite well right now, with its summer term enrollment finishing at 24% over last year’s, and the number of global online students increasing 43% due to the strength and variety of STRA’s degree programs.

Future Growth: The numbers speak for themselves. Strayer posted a 29% jump in profit for the second quarter, buoyed by strong growth in student enrollments. Specifically, the education provider earned $27.5 million, or $2 a share, compared with $21.3 million, or $1.50 a share, in the same period a year ago. What’s more, analysts were expecting earnings of $1.97 a share on revenue of $125 million, so the company posted a 1.5% earnings surprise and a slight sales surprise. The company has met or exceeded expectations for each of the last four quarters, and that indicates another strong showing this quarter when the stock reports earnings later this week.

The Verdict: My fundamental analysis of Strayer Education shows a strong trend of earnings growth and sales growth. That bodes very well for this company, and I am confident shares will continue to move higher. I currently rate this stock a buy for my Emerging Growth small-cap newsletter, and I think it’s a great purchase for any investor.

(For my FREE Portfolio Grader stock report on Strayer (STRA), click here.)

Now, let’s take a look at Corinthian Colleges (COCO), another for-profit education stock that I have high expectations for:

NEXT UP: Corinthian Colleges (COCO) >>>