The New Business of Education-Trace Urdan of Signal Hill Explains Investment Opportunities
Monday, February 18, 2008PAUL KANGAS: So with all of the new trends in education, are there opportunities for investors to make money? To help us look at investment possibilities in the education business, joining us from New York is Trace Urdan, senior analyst with Signal Hill, who specializes in the for-profit education sector. And, Trace, welcome to NIGHTLY BUSINESS REPORT.
TRACE URDAN, SR. ANALYST, SIGNAL HILL: Thanks, Paul. Good to be here.
KANGAS: Right now, would you recommend education as a good place for investors who are looking for a recession-proof industry?
URDAN: I would say so. Generally speaking, education stocks do very well when the economy is weaker. The companies that sell into Federal funds are pretty well protected. Federal spending is pretty well divorced from revenue collection. The state-funded programs sometimes feel a little bit of pressure when state and local tax receipts are down, but it tends to be pretty mild relative to what we otherwise might see in the corporate environment. And, generally speaking, when you're talking about consumer stocks, you even see a tendency for consumers to want to spend on education when they're feeling anxious about the job outlook.
KANGAS: Yeah, makes sense. What about the fact that we'll have a new occupant in the White House next year? Do you think that could impact education spending?
URDAN: Well, it will either be good or it will be better. Very few politicians ever get elected by promising to cut spending on education, so even the candidates that are critical of the Bush No Child Left Behind program, really what they want to do is to increase the spending for it and so-call fully fund it. So, like I said, it really looks pretty good as far as future occupants of the White House are concerned.
KANGAS: Now, in this program we've looked at four specific areas: testing, tutoring, charter schools and educational technology. Do you like any of these sectors and are there any companies whose stocks you can recommend as ways to play off of them?
URDAN: Sure. Those are all areas where you're seeing a lot of interesting trends taking place. They don't all necessarily have public stocks that you can invest in. What we know about the testing market right now is that a lot of the winning companies there are still private. The big players -- McGraw Hill and Pearson -- from what we can tell, are getting nibbled at by some smaller competitors that are coming on as new tests are being introduced, largely as a result of No Child Left Behind. So, I would say, for investors, maybe stay tuned in that space. In the charter school market, you know, charter schools are politically controversial, and that tends to sometimes be problematic from a public market standpoint, Edison schools being a good example when it was a public company. But now there's a new company in this space called K-12. This is -- the ticker there is LRN and it's a newly public company. It was a very hot IPO.
KANGAS: Right, I remember.
URDAN: There's a lot of-- right-- a lot of enthusiasm because what they're offering is charter schools online and that's an area that is growing very rapidly still right now.
KANGAS: OK. Well, Trace, there are many other parts of the education business that we didn't have a chance to cover, ranging from pre-school to higher education. Can you identify briefly some other areas with growth potential?
URDAN: Sure. In the K-8 school market, there's a company called Nobel Learning Communities. Ticker there is NLCI.
KANGAS: OK.
URDAN: And they run, actually, private, for-profit pre-K and K- 8 schools. And what you're seeing there is that as the children of the baby boomers -- the echo boom, sometimes called- - are just getting into child- bearing age now. And so you're going to have a real, sort of, demographic story to tell as far as that market is concerned.
KANGAS: I do have to ask you, do you or Signal Hill have any ownership positions or investment banking relationships with the companies you've mentioned?
URDAN: Not in the one -- not in the stocks I've mentioned today.
KANGAS: OK. I want to thank you so much for helping us to learn about investment possibilities in this new business of education.
URDAN: Thanks, Paul.
KANGAS: My guest, Trace Urdan, senior analyst with Signal Hill.
