Private Education May See Bright Future

Apollo Group [[APOL]], DeVry [[DV]], Career Education [[CECO]] and Corinthian Colleges [[COCO]] have all been strong performers as the deteriorating job market incentivized many to continue their education instead of seek employment. However, this trend is only sustainable if future employment prospects improve. Luckily, this recession may be the perfect storm for private education companies.

The inverse relationship between employment and education is well-documented. A quick look at the unemployment rate charted over the same frame as private education stock prices demonstrates these trends. People tend to seek education at the government’s expense when employment is not available in order to productively occupy their time. However, this is only sustainable if employment recovers.

According to the Bureau of Labor Statistics, unemployment sits at 7.6 percent compared to approximately 4.7 percent during this time last year. The decrease in employment is certainly not a good sign, but historically an unemployment rate of 7.6 percent is not all that devastating. In fact, the 50-year historical unemployment rate is 5.9 percent while the worst in history was 24.9 percent during the Great Depression.

Investors looking to make a long-term play on these companies without putting much capital at risk may want to consider purchasing long-term options called LEAPS. These Long-term Equity AnticiPation Securities offer investors the benefits of stock ownership down the road without the risk of committing a lot of capital at the present moment. This means a higher return on investment, but at the cost of a higher breakeven point and a complete loss if shares drop below the strike price.

See “Using LEAPS as a Stock Substitute” for more information on this strategy or check out our Tools & Products for more ways to make money with LEAPS!

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