April 20th, 2010
How many of you remember the history of for-profit education companies between 2000 to 2003? They’re probably some of the best examples of Wall Street’s herd mentality when it comes to stampeding towards an industry group, running up prices and, even more quickly, running away from it as if it had a plague.
After the Tech Bubble Crash in 2000-03, hot money was looking for someplace to go since Tech was dying or dead; that place was For-Profit Education stocks. The fundamental theory sounded good. Employees displaced by the collapse of firms in the Tech Industry needed to learn new skills to find work in other fields and for-profit were there to satisfy the need …. and at the same time make a lot of money. The three largest firms in the industry appreciated 10-fold (that’s 1000%) in 4 years. Career Education Corp., for example, went from under $5 at the beginning of 2000 to $70 by June, 2004.
Unfortunately, the light that turned green in 2000 switched to red in 2004. Towards the end of 2003, the schools were subjected to a series of investigations and lawsuits by authorities for violating Federal programs and resulted in adverse judgments, substantial penalties and fines. The stocks tumbled and the image of the industry was severely compromised.
But that was then and now is now. The Commercial Svces-Schools Industry Group was ranked 69th last Friday, up from 194th (out of 197) at the end of last year. There are 28 firms in the Group today of which 5 are Chinese. Several stocks in the Group have either begun to make all-time new highs and others appear to be attempting to break through significant resistance. I thought long-term charts were best at displaying the sort of action since their peaks in 2004 (click on images to enlarge):
Again, something different seems to be happening with the Group (I intentionally omitted Chinese education stocks and these seem to have similar patterns) and they are generating some momentum relative to other Groups. This is a purely technical view of an industry group and you need to do your own homework to decide which stock, if any, will work best for you in your investment time horizon.