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Stock Picks: Pawnshops & Debt Collectors

If they recommend financial stocks at all, most experts are aiming at the top of the sector, at banks that have managed to escape the subprime meltdown. Formula Capital's James Altucher has been working the other end.

"Basically, you've had 300 subprime lenders get wiped out in the past year, but people still need to borrow money," he told CNBC.

"Where can they go? Sadly, the companies that are doing well in this environment are pawnshops (and) payday lenders."

Recommendations:

Altucher's top pick is a company that's involved in both businesses.

"CashAmerica: ...a VP of the company just bought back $2 million worth of stock, with his own personal money," he said.

"They just raised guidance 20 percent. Pawnshops is a great business: They lend you money and they keep the collateral!"

He says payday lending is a little more risky because some states have passed laws regulating it. But he explained that for CashAmerica, "70 percent of their business is pawnshops, 30 percent is payday lending."

He also likes Asset Acceptance.

"Another place to borrow money is your credit card. Unfortunately, now, in this environment, many people are defaulting on their credit cards. What these people do is buy portfolios of defaulted credit-card debt, and then they collect."

He notes that the debt the company is buying this year is as much as 40 percent cheaper than the debt they bought last year.

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Disclosures:

Disclosure information for James Altucher was not immediately available.

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