Where should we look for sectors or subsectors that are well-positioned in this economy?
Well, a lot of people are losing their jobs. Even more are concerned that their jobs are in jeopardy. So, what can they do about it?
How about going back to school? Learning a new trade or becoming more proficient at their current vocation. In short, they can make themselves more marketable to a dwindling supply of prospective employers.
Taking measures to increase the odds of finding — or keeping — a job sounds logical, yes?
Of course, where there’s a need, there’s usually someone to fill it. Such is the case for an increased demand in educational and training services, a sector that has lately been a market leader.
Apollo: Going to the Head of the Trading Class
Apollo Group (APOL) is the granddaddy of the sector with a market cap of more than $12 billion. One of its subsidiaries is the University of Phoenix, as in the name of the stadium that held last year’s Super Bowl.
APOL blew out earnings and revenue estimates, reporting $1.12 per share in profits compared to the 98-cent estimate. That’s a 35% jump in profits from the year before, which says something these days. The stock popped 13% the next day, hitting a four-year high.
Of course, that doesn’t mean much if you didn’t have any skin in the game. Our Winning Edge subscribers did, as we recommended buying the APOL Jan 75 Calls on Wednesday, Jan. 7 — the day before earnings.
We then told subscribers to close the trade on the morning of Friday, Jan. 9, after we’d captured the big jump in share price.
The result?
>
A gain of just under 100% on a trade that was open a little more than a day. What’s more, note that we didn’t try to be greedy and stay in the trade, hoping for more upside. As you can see in the chart below, APOL has given a lot of this gain back since then, as it’s been pulled lower by overall weakness in the market.
The moral to the story?
That’s how powerful the combination of earnings and options can be. So, it’s our job as traders to take what the market gives us … and to be happy about it. And then, we’re free to find the next trade to make and do it all over again!
3 Education Plays to Consider
OK, so the cat may be out of the bag for this earnings season with APOL, but it isn’t the only game in town. Remember, earnings season is just getting started! Let’s take a look at three other names in this sector that are set to report.
>
1. DeVry (DV)
DeVry has a number of subsidiaries that offer degree programs in healthcare, technology, business and management in the United States, Canada and online. This stock is the laggard of this group, managing a gain of around 5% for the past year. But that puts it miles ahead of the S&P 500 (SPX).
DV has a strong earnings history and reports on Jan. 27. Like APOL, the stock tends to move sharply after earnings. We’re adopting a wait-and-see approach with DV. A lot can happen between now and Jan. 27.
2. ITT Educational Services (ESI)
ITT’s “institutes” primarily train in technology areas, although the company provides business, criminal justice and health science programs as well.
With more than 60,000 students at its 100-plus locations, ESI claims that enrollment has increased for 51 straight quarters. The financial numbers are equally impressive — ESI has averaged profit growth of 37% for the past eight quarters.
The stock usually makes significant moves after earnings, but not to the extent of APOL or DV. ESI is scheduled to report in mid-January. We’re not jumping on the stock at the moment, but it’s on our bullish watch list.
3. Strayer Education (STRA)
STRA is the smallest ($3 billion market cap) and least-well-known of our top four. But it has the best 52-week return at more than 22%.
Strayer University offers a number of graduate and undergraduate degree programs geared toward “working adults,” with 44,000 students at its 62 campuses and via the Internet.
STRA hasn’t missed an earnings estimate in seven years and has averaged 24% yearly profit growth over the past eight quarters. The company next reports earnings on Feb. 12.
The stock has a history of sharp drops followed by quick recoveries. This is a high-priced stock (currently above $200), so it may not be for everybody. And option volume is light, so spreads are unfavorable for short-term trading. Thus, STRA is better suited as a longer-term stock play than for options.
Education is a sector that has a bright future, and even more so for options traders. Check it out for your portfolio.
Jon Lewis is the co-editor of The Winning Edge trading service designed to help you make options profits around corporate earnings and other market events. For more information about Chris, read his bio here.
