Education Stocks In The Age Of Trump


As we know, shares of for-profit education companies suffered mightily in light of crises and allegations regarding low-quality education, poor student outcomes, high-pressure salesmanship, ill-conceived lending, and eventual regulatory crackdowns. Some former industry mainstays have been shuttered. But times may change. It’s not just that Trump himself has regulation-cutting sentiments and has had past involvement in the business. It’s that this was always an important area calling for the solving of problems, not carpet bombing of the industry. So it may be worthwhile to look at some promising education stocks.

In this Thursday, Sept. 10. 2009 photo, Brenda Combs, now a doctorate student at Grand Canyon University and ambassador of inspiration and achievement for the school, smiles about her present but remembers her homeless and drug addicted past in Phoenix. (AP Photo/Ross D. Franklin)

Screen Selections

On 1/30/17, I presented a screen I created in response to the pro-everyman mega-trends I believe will take hold based on the themes discussed in President Trump’s inaugural speech. I don’t predict Trump will or won’t succeed. I do predict things will move John and Jane Doe’s way whether it’s done through the efforts of Trump, Congress, or a whole bunch of new people voted in down the road in both branches of government. Of the 20 stocks I presented, two were in the area of for-profit education; DeVry Education Group (DV) and Grand Canyon Education (LOPE).

This “Business” Has to Work

My conviction regarding stocks like this lies in my belief that the business as a whole will work because it has to work, because it had darn well better work

I don’t say this as an apologist for Trump University. In fact, before that former enterprise made big headlines, I went ballistic when my wife signed up for a free real-estate workshop offered by another outfit and I explained why she should run fast and run far from things like that (she listened and was a no-show).

Instead, I cite the January 14, 2017 issue of The Economist, which made “Lifelong learning” the week’s cover topic. In that edition’s Leader’s section, the magazine observed, correctly I believe, that the “classic model of education – a burst at the start and top-ups through company training – is breaking down.” No matter what one studies, no matter what skills one takes into the work force, no matter what dreams, aptitudes, etc. drive one, there is one thing we can be pretty sure of: It won’t get them through life, not even close. The world evolves; that’s been much written about. Less widely discussed but equally important, people evolve. Heck, I work today in a field I didn’t know existed not just when I was in high school but even when I got out of law school. No matter who we are, we, all of us, have to be students all our lives, and we will do that. And the education system will eventually have no choice but to evolve. I don’t know that the for-profit education companies, including the ones on which I’m focusing today, have all the answers. Nor am I even sure the MOOCs (massive online open courses) have it just right. But I do believe that the latter are at least closer than traditional public education and are at least moving in the right direction.=, albeit not always smoothly.

Reports of abuse among for-profit colleges have been plentiful, alarming and amply documented. But in contrast to the apparent views of some, I do not see this as a clarion call for destruction of the sector any more than early abuses in the manufacturing sector (filthy, unsafe conditions, onerous working hours, child labor, etc.) were a call for cancellation of the industrial revolution.

See problems. Fix problems. We’ve done that before. I think we’ll do it again with education. For investors, I’ll expand it a bit: See problems. Fix problems. Own shares of companies likely to be part of the solutions.

DeVry (DV) as Part of the Solution

Admittedly, it requires something of a gulp to type a heading like that given that DV is an established name in this area and, not surprisingly, has experienced legal issues and consequences, both in the legal-regulatory arena and in the marketplace. The good news if you want to label it such, is that it hasn’t been nearly as severe here as with others, and the company remains in existence – not all can say that. Moreover, DV has settled with the FTC regarding some advertising practices.

There may still be potential bad headlines since DV believes it has some vulnerability under new regulations governing the relationship between student debt and earnings. But it does not appear to impact more than a small portion of the company’s offerings. The biggest challenges going forward for the new CEO who took the helm in 2016 may be in the marketplace and to the extent image is reality, the classroom.

The company’s namesake DeVry institution competes directly with community colleges many of which are public and hence able to offer lower tuition than can DV. One might assume DV is for those who can’t get into community colleges. There is likely to be some truth to this, but not 100%. Community colleges, in many cases just a step above high school, often have schedules that reflect this sort of heritage. In other words, they may not be quite as able as an institution like DV to accommodate the varying “delivery” needs of non-traditional students (i.e. working-age adults). DV’s Caribbean-based medical and dental schools are in similar situations. And there is often an unfavorable image that can be associated with non-US medical education.

I’m not able to say what’s true and what’s not with regard to education quality. Ultimately, though, an investment case for DV isn’t really based on what the business or company is today. It’s about where one thinks it will go. As explained above, I believe the field will change a lot. DV’s place in it may be influenced by its stature as a survivor and it’s has broad wings, evident  in how it has stretched beyond traditional community-college-type to other areas; medical and veterinary school, nursing school (an area of current strength), a Brazilian branch, and high-level test prep (via Becker, which provides test prep for the CPA exam).