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For-Profit Education Stocks: While Shorted by Some, Attracted Value Investors

January 25, 2011 | About:

The for-profit education providers in the US, such as Strayer Education, ITT Educational Services, Apollo Group Inc. (owner of the University of Phoenix), Devry, Corinthian Colleges, and Washington Post Co. (which owns Kaplan Inc.), may wish they have seen their worst days behind then. Caught between proposed tighter regulation and short sellers, you would not believe these kinds of performances in a year during which the overall market went up in middle teens:


The saga is not over, as the rules governing the industry has not been finalized yet. Until then, one would expect the high volatility from these stocks.

The role that Hedge Fund managers, such as Steve Eisman played in the performance of the stocks and the formation of the regulation dealing with these companies are the topics of two articles in the nation’s top business publication this morning: one by Kambiz Foroohar and Esmé Deprez with Bloomberg, entitled ”Big Short Eisman Vies with Goldman Over Profits” and another one by Mary Pilon, Jonathan Weisman and Brody Mullins with Wall Street Journal, entitled "A ‘Short’ Plays Washington".

Needless to say, the low price and valuation level caused by regulation uncertainty and short selling created some interest among the value investing community. Some commented in the Bloomberg article:

From the Donald Yacktman camp:
“There is a lot of fear-mongering, which is actually great because it causes the stocks to probably overshoot on the downside, giving us the opportunity to look at them,” said Jason Subotky, vice president at Yacktman Asset Management Co. in Austin, Texas, which has $6.7 billion under management.

“We are glad the short sellers came along to amplify the uncertainty,” Subotky, whose firm owned 1.67 million shares of Apollo Group Inc. as of Sept. 30, said in an interview. The firm has increased its stake since, he said.

From the Wallace Weitz camp:
David Perkins, an analyst at Wallace R. Weitz & Co. in Omaha, Nebraska, said, “Often times the most opportune time to purchase a stock is when people believe the story the least.”

The investment firm oversees $3.7 billion, including shares of Phoenix-based Grand Canyon Education Inc., Strayer Education Inc. of Arlington, Virginia, and Washington Post, where the Kaplan unit generates two-thirds of the Washington-based company’s revenue.

“As longer-term value investors, we’re not playing the headlines or trying to find investments that will necessarily reward us in the near term,” Perkins said in a telephone interview. “We believe there’s still a significant opportunity to educate working adults in this country and that the for- profit model, when applied in the best interest of its students, is an economically compelling means of providing a necessary public good.”

The Bloomberg article mentioned that Lee Ainslie declined to comment for the story, but it contains the following comments on his investment in the sector:
Lee Ainslie, the New York-based founder of Maverick, invested in Apollo in the third quarter of 2008 and has added to his position. In the third quarter of 2010, he bought 190,692 shares, for a total of 7.7 million shares valued at about $330 million. Maverick owns 5.4 percent of Apollo, making it the company’s second-largest shareholder after John Sperling, its founder, according to data compiled by Bloomberg. Apollo fell 35 percent last year, the third-worst performer on the S&P 500.

At the Value Investing Congress in New York in October, Ainslie defended for-profit schools. “They serve minority communities that are underserved,” he said. “For-profit colleges deliver better results than community colleges.”

The article also listed the following investors who held long position in the sector:
For-profit college investors include hedge funds Maverick Capital, New York-based Tiger Global Management LLC, Lone Pine Capital LLC of Greenwich, Connecticut, and San Francisco-based Blum Capital Partners LP. Goldman Sachs, the New York-based investment bank, has a 39 percent stake in Pittsburgh-based Education Management. Warren Buffett’s Berkshire Hathaway Inc. of Omaha owns 24 percent of Washington Post.
You can find the portfolios, including their holdings in the for-profit educators, of Donald Yacktman, Wallace Weitz, Lee Ainslie, and Warren Buffett mention in the Bloomberg article, here at GuruFocus. Click on their name to find out more.

Rating: 3.6/5 (12 votes)


Kfh227 - 6 years ago    Report SPAM
Why not wait for universities that are actually good and in dire straits to go public?

Some universities spent like whores during hte housing bubble and now are loaded with debt. Goind public could be a way out for them.

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