Google the words “back to school,” and you get about 11.8 billion results.
Going back to school is a ritual almost as old as man. Every year, come August, parents struggle to get their kids ready for the year ahead. Whether you’re the most organized person in the world or the least, getting the kids prepped, no matter how old they are, isn’t easy.
However, if you’re expecting an article about some of the ways to make your life easier, you’ve come to the wrong place.
This article is about the best stocks to buy to make the student’s life easier. In some manner, all seven of these stocks participate in the daily lives of students. Some more than others, but they all have a role to play in a student’s academic career.
Buy these seven and you might just pay for part of your child’s education down the road.
Best Stocks for Students: Starbucks (SBUX)
Ever since Starbucks (NASDAQ:SBUX) first introduced free WiFi in their cafes in 2011, you can go into a location at any time of day and see students typing away at their keyboards. If the location is near a university, you can expect it to be rammed with students.
Even though there are frugal individuals who take advantage of the freebie by staying for hours on end, while buying nothing but the original coffee they purchased upon entering the store — Starbucks wouldn’t continue to provide free WiFi if it didn’t get an absolute return from the cost of providing it.
Sure, most Starbucks are staffed with friendly people, but the name of the game is profits; Starbucks likely takes the WiFi usage data in combination with its Starbucks Rewards data to deliver the ultimate profitability for shareholders and the company.
It’s hard to imagine what coffee shops would be like today if big chains like Starbucks didn’t roll out free WiFi. Students might have to enjoy the coffee and talk to friends.
Sysco is the world’s leading food service distributor delivering food products to facilities all over the world. Sysco generates approximately 8% of its revenue from education and government.
While restaurants are by far the biggest revenue-generator accounting for 62% of sales, you can be sure that the exact number for education, if you include restaurants operating near or independent of schools, is much higher.
Currently, Sysco is in the middle of several cost-saving initiatives intended to increase efficiencies while sending more to the bottom line. Included in the efforts is the company’s rationalization of its Canadian operations to service its many regions more efficiently.
It makes sense to me. American companies often don’t get Canada right.
In the third quarter ended March 30, Sysco increased revenues by 2.2% year over year to $14.7 billion generating operating income of $529.6 million, 9.8% higher than a year earlier, a sign its cost-saving initiatives are gaining traction.
Yielding about 2%, as long as people keep eating, SYY stock will continue to provide good shareholder returns.
American Campus Communities (ACC)
Up 18.5% year to date, ACC has had a spotty performance in recent years compared to the rest of its peers in the residential REIT industry.
However, long-term, I believe that the changes happening in student housing will be very beneficial to American Campus Communities, which is the only pure-play publicly traded REIT that focuses on this area of real estate.
Same-store rents continue to grow — 58 consecutive quarters — with an occupancy rate of 97.5%, well above the average for the entire U.S. market for apartment buildings.
Focusing on universities where the housing stock is outdated, I expect ACC will continue to flourish in academia.
That being said, if people are going to borrow to go to college, companies like Navient (NASDAQ:NAVI) have a right to make money off servicing these loans.
What they don’t have the right to do is harass borrowers. Ultimately, if Navient is abusing borrowers through the use of robocalls and other aggressive tactics to recover funds, the federal and state governments should take them to task over these moves.
In defense of Navient, it uses telephone calls to connect with borrowers to arrange alternative repayment schedules, so these people don’t default on their loans.
I wouldn’t recommend NAVI if you’re looking for investments completely free of bad PR. However, it continues to grow its quarterly profits by double digits — Q1 2019 EPS of $0.55, 38% higher than a year earlier — making it an attractive investment for hedge funds and other institutional investors.
Graham Holdings (GHC)
One of those remaining assets was Kaplan. Broken into four segments: Higher Education, Professional, Test Prep, and International, the company’s educational segment generated 54% of its overall revenue in Q1 2019 and a significant amount of its operating income.
Together with its television broadcasting assets, Graham Holdings goes as these two divisions go.
Of Kaplan’s four segments, its international unit is by far the most successful. In the first quarter, it earned $24.3 million from its operations on $185.8 million in revenue. The company’s second most profitable segment is its professional unit with $11.3 million in operating profits from $41.2 million in revenue, an impressive operating margin of 27.4%, almost double its international business.
There is no question, however, that the international business is where most of the assets in the business lie. In the first quarter, Kaplan International had $1.3 billion in identifiable assets. That’s 25% of its overall assets.
Kaplan could someday find itself trading as an independent, publicly-traded company. Selling at or near an all-time high, the spinoff could come sooner rather than later.
Today, Chegg is focusing on growing its digital subscription business, referred to as Chegg Services, which generated 77% of its Q1 2019 revenue of $97.4 million, up from 73% a year earlier. The legacy rental and sale of printed textbooks is referred to as Required Materials, and it accounted for the remaining 23% of its quarterly revenue.
In Q1 2019, Chegg Services’ revenues grew 34% year over year compared to 7% growth for Required Services.
While Chegg doesn’t break down how profitable each business is, I can guarantee the Chegg Services segment hands down has higher margins. In Q1 2019 in its entirety, Chegg lost $4.3 million, 65% higher than a year earlier. Don’t let that scare you off.
“Demand for this platform will only grow over time. Chegg is becoming a necessary learning companion for millions of high school and college students as they spend increasingly time in the digital space,” wrote InvestorPlace’s Luke Lango recently.
Luke’s on the money.
Chegg might not be profitable just yet, but it will be. Buy in now while its shares are still affordable.
A recent story in The Philadelphia Enquirer highlighted the reason why Square (NYSE:SQ) is growing its Cash App by leaps and bounds after struggling to gain traction when it first launched the app in 2013. Of course, back in 2013, people weren’t into fintech like they are now.
The author asked a university business student to find out how millennial’s pay each other and exchange money.
“Young people use payment apps — or applications on their smartphones — to pay each other,” wrote Erin Arvedlund. “The most popular apps are Venmo, owned by PayPal; Cash App, owned by Square; and payment apps linked to Snapchat or the smartphone itself, such as ApplePay and SamsungPay. The applications let you link your bank accounts — a checking account or credit card — to pay someone, and payments aren’t always cheap.”
The date of this article was February 2018. That’s right. Seventeen months ago. You can bet usage has increased since then.
PayPal (NASDAQ:PYPL) owns Venmo. It’s the leader in person-person payment apps with 40 million active users. Square, however, is coming on. It had 15 million active users at the end of 2018, double the number a year earlier.
What’s exciting about Cash App, is that the average user makes less than $50,000 a year, a demographic that is often under-banked or un-banked, putting Square in the perfect position to win over many of the estimated 50 million in the U.S. that don’t have a bank account.
Get students while they’re young and move them into your business services once they graduate and want to start their own businesses.
Of all the student-related stocks, Square probably has the most potential to be huge over the next 5-10 years.
I like it a lot.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.