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Back to School – on the Internet

Friday, 9 Jan 2009 | 8:41 PM ET

There’s nothing like going back to school as a way to ride out a bleak job market. And with the unemployment rate at 7.2%, a lot of American may do just that. Investors looking to trade the trend should buy American Public Education, Cramer said Friday.

The Case for American Public Education (APEI)
American Public Education is that rare company that can genuinely benefit from unemployment, says Cramer.

American Public Education is an online, for-profit, post-secondary education company, operating both American Military University and American Public University. APEI’s tuition costs are 90% lower than state graduate schools and 60% lower than state undergrad institutions, making the company even more attractive during a recession. APEI isn’t merely recession-proof. It thrives during downturns.

If Apollo Group is any indication, then APEI should do well. Apollo, the largest for-profit college and graduate education company, on Thursday reported a better-than-expected quarter, sending the stock up 5%. One key metric – new-student enrollment – was up for the third straight quarter.

For APEI, Wall Street expects 41% revenue growth and 44% earnings-per-share growth in 2009. So don’t be scared by the 32 times earnings price-to-earning multiple. This is a high-growth, high-multiple stock – one of the few left in the market right now. And while you might not ordinarily think of education as a growth sector, online schooling is. U.S. postsecondary enrollment is expected to increase at a 1.3% annual rate over the next decade, but online enrollment should grow 12% a year.

Then there’s the military angle. Of the 1,200 schools that serve a potential 2.2 million military students, only 20 to 30 are online. Just 30% of men and women in the armed forces hold bachelor’s degrees. And APEI, with its eight-week and 16-week classes, offers soldiers who can be deployed at a moment’s notice much-needed flexibility. So, again, leaving plenty of room for growth here.

Cramer recommended investors wait until APEI dips below $37 before buying. The stock is up big after Apollo’s strong quarter. But there might be the chance to catch a similar move when ITT Educational Services and DeVry report later this month and Strayer Education, Corinthian Colleges and Career Education report in February.

APEI has a habit of delivering guidance too conservative for Wall Street’s tastes. So even if the company’s next quarter, coming in March, is good, the stock could drop. But that would just offer investors a buying opportunity, Cramer said. because APEI has consistently underpromised and overdelivered since coming public in 2007.

Of course, the usual speculation rules apply. Do your homework, be patient and wait for that pullback, and make sure no more than 20% of your portfolio is invested with APEI. This may be one of the few companies that benefits from unemployment, but there’s still some risk involved here.





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