For education stocks, this is truly a Dickens type of world: the best of times, and the worst of times. The common theme for these stocks is that they will benefit as the economy turns down. The rising rate of unemployment will cause workers to actively seek retraining, and the enrollments will swell. With the rising enrollment rate, it would stand to follow that the coffers of education companies would fill rapidly.
That is the theme of late, and the group has been one of the best-performing in the stock market. The two best companies in the industry have totally defied the trend of the overall market. DeVry (DV - commentary - Cramer's Take) is up 54% over the last year, and Strayer Education (STRA - commentary - Cramer's Take) is up almost 30% in the same period.
It is a great theory. As jobs are lost, it is entirely true that displaced workers are going to want training to get a new and better job. The question is, how will they pay for school? They have lost their jobs, and they have to pay basic bills such as food and housing. The savings rate in the country is pretty much zero, so there is little chance that most of the laid-off workers can dip into savings. Even if they own a home, odds are that they have little to no equity, given the collapse of real estate prices, so that's not an option.
Student loans are not going to be the solution either. Although the federal government has taken steps to reinforce the troubled student lending market, these measures are not going to be enough to support the demand. Privately issued student loans are almost nonexistent right now. Credit standards are impossibly tight, and those who need loans to pay for education are simply not going to qualify for them.
At the time of publication, Melvin had no positions in stocks mentioned, although positions may change at any time.Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.
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