First of all, despite being able to predict the selling into early March, I had been burnt badly by being in levered bear funds in the recent bull surge. My money management sucked, big time! And then there are powers that be who finally got some control of the situation. The people in the know got the plan transmitted to them well ahead of the rest of the investment public. However, when Citi said they were “profitable” thru Feb, it is a big clue for the public (and the bears.) Like many, I was too slow to react. In one of the relies I mentioned that S&P may have another hit at the upper BB before retreating. That scenario is looking more likely now. I will post my useless thoughts on the market as a whole later. But for now, I would like to present my useful take on APOL.
In our college graduate degree applications dropped 50% from last year. The administration is cutting spending on almost everything. “Out of job people will go to school to reeducate themselves” is a pipe dream cooked-up by the likes of Jim Cramer. Even if people go back to school in droves, they go to real colleges where they get useful degrees and diplomas. I believe that the hype surrounding the degree sellers like APOL, Strayer, DeVry is over. The charts look very bearish. Here is my take on APOL chart.
Thanks Mohan, good to see you post.
I have been waiting for this guy to fall. Another one to watch for long term is AZO, their financials suck, eventually it will catch up with them.
Whats your strategy on APOL as far as Puts?
Thanks
I have puts on APOL now. I will cover them at 59 and go nuclear short if it comes back to 63, cover them at 51 and go nuclear again in mid 50s.
April or May Puts?
APOL is a different animal and can’t be placed in the same boat with other (more legitimate and rigorous online universities). APOL (under the Univ of Phoenix namebrand) has been widely known to be a degree seller, since they do not teach theory nor real-world fundamentals and run their education system based on the profitability (rather than the curriculum). It is interesting to see their applications decline while other schools have had increases.
I am a little biased as I have an MBA from Capella University (one of the very few online universities that require Ph.D. faculties to teach their classes). Other “quality” online schools include Walden Univ, and American Military University (APEI). I expect these schools to see the enrollment increases from APOL/Strayer/DeVry declines. Two of these (CPLA, APEI) will probably sell off when APOL gets slaughtered. However, CPLAand APEI will probably be a case of the baby being thrown out with the bath water and I’ll be looking to pick these two up at extraordinarily low P/E’s compared to today’s values. Both are still very profitable, with APEI increasing enrollment by 75% last year to 45,000 students, a very small fraction of their total capacity to market directly to every member of the Armed Forces since they can do direct GI Billing with the DoD. Capella hasn’t seen the “dramatic” growth rates of APOL, and is geared more towards the working professional seeking a graduate or Ph.D. degree. I look forward to start buying both CPLA and APEI at the $25 level (roughly a 20-30% decline for both) if we ever see a pullback to those levels.
As for APOL, I’m buying May 55-50 put spread.
On Bloomberg (or CNBC) yesterday that did a peice on how all the MBA students should be totally bummed because they are paying a fortune for an education and expecting a high paying job because they will have an MBA. The point of the piece is that the job market has changed and an MBA wont buy what it used to.
APOL should have advertised on that segment. I stand behind the belief that the highly educated believe APOL is crap (rightly so) compare to their own education so it should be shorted. However, the uneducated will flock in high numbers to lower cost education if the ends can justify the means. Personally, I don’t play APOL….but I wonder if this is not more of a recession resistant stock that the over-education might think.
Is APOL cheap? No, but cheaper that an MBA
Is APOL better? No, but on the job training is still the best education.
Does APOL require less time commitment than an MBA? I think so, so no need to quit work.
Balance Sheet: Very Good
Chart: Not so good but we all have learned not to trust H&S
Good post Mohan. I know I was hard on you before for being over-bearish about a month ago. I did not handle my comments properly at that time and I sincerely apologize.
APOL (the stock) is not cheap P/E wise and that’s my reasoning also for shorting it through puts.
APOL (the school) isn’t cheap either.
No need to apologize. If I recall, your comment was on my timing. IN reality, my timing (in terms of my execution of trades) sucked for the last two years.
Cyan: Are you familiar with Westwood? Your take on their “legitimacy?” They are privately held, I believe, but that may change. Just curious.
Haven’t heard of them. Doesn’t mean that’s a bad thing or anything. Just look at their curriculum and their faculty. Also their alumni success means alot.
ty
Another holiday market view posted on Minyanville:
For some very interesting statistics on the S&P 500 and holiday rallies, check out this buzz today, by Professor Jason Goepfert.
“There were 6 times the S&P gained more than +2.5% the day before a holiday. Over the next week, it showed positive returns only once (and that one gave back all of its gains during the next week). The overall average return was -2.1%, with the average drawdown (-3.6%) more than tripling the average maximum gain (+1.3%).
“If we drop the parameter a bit and look for pre-holiday gains of +2% or more, then we get 11 occurrences. The next week showed positive returns only 3 times, with an average of -1.2%. The last 7 of them, dating back to 1999, were all negative over the next week.
“The closer we get to 860ish, the more inclined I am to have short exposure.”
Personally, 870 is my exit point. Could be Monday. Could be after OPEX. Ready either way. Over 900, I’ll eat words that the rally is over.
I am still short since earlier yesterday at 850 on the S&P. i wanted to jump out but that close did indeed look very amateurish.
I still think the EOD was a GS buy on the rumor. The volume was sooooooo high.
GS rumor? The new secondary offering to pay off TARP? Why would that cause a rally if they would be hugely dilutative for existing commons? And from what has been printed at Bloomberg.com, the gov’t won’t allow repayment of TARP because then they won’t have the puppet strings attached.
That replaces debt with equity. Refer to balance sheet. It is a good thing and done when confidence is high.
If Goldman Sachs’s first-quarter earnings match or exceed expectations, “it would make a lot of strategic sense to announce share sales in concert with releasing earnings,” said Celent’s Schauerte.
—From Bloomberg.
I am going to sell FAZ pre-market Monday (I think we will open with a gap down) and buy FAS. I will then switch back to FAZ after JPM reports on 4/16. That is my tentative plan, but obviously this can all change quickly depending on what happens.
CYAN: Did some research. Westwood is owned by Alta which is now part of The Princeton Review. Comment? My daughter just got hired there. I’ll look into it more.
Princeton Review is the publisher of the popular “Top 100 Undergrad Schools in America” and its various derivatives. Congrats on your daughter’s new job. Working there may not be as bad because they will most likely be gaming alot of students into paying more money.
Who knows, maybe it’ll turn out good…
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http://extremefinancialadvice.blogspot.com/
M:
thanks for sharing both positive as well as negative market experiences…my worst trades
have been wrong direxion positions with leveraged ETFs and got trapped overnight…
i guess that’s why they offer 1x or 2x or 3x so one can choose degrees of risk/reward…
the private education market has been growing gang busters like the “Wild West”…
because the government funding of student loans is the primary tuition reimbursement mechanism, with related tax breaks, credits for students, incentives; IMO it parallels the infamous mortgage mania market bubble….ripe for fraud and abuse…unsecured loans with no collateral…further, tuitions are going higher and higher as easy money is available for students…How many ways can cash flows be manipulated as students (real or phantom) are scrapped-up and given “tuition assistance”?…sorry to sound suspicious, but Madoff
got away with his scheme for 13 years before it was discovered…i hope the auditors and regulators are watching these companies closely so naive students and taxpayers and investors “don’t get Fooled again…THE WHO”
It’s really not any different than traditional brick-and-mortar schools that have been raising tuition prices along with the expansion of student loans. Do you really think costs for a traditional “non-profit” school has been rising at 20-30% per year? I can guarantee you they aren’t giving their employees those kinds of raises.
The whole thing is a ponzi scheme and when it comes crashing down (soon from what I can tell) it’ll shake out the bad (APOL, STRA, DV) from the good (APEI, CPLA, COCO). What I won’t appreciate is that the “good” will probably get lumped all together with the bad and ruin the whole idea of distance education for many working professionals who are looking for a school that can offer more than just a piece of paper.
Of the good, I still retain my view that APEI is probably the best suited for the long-term since the student-base is 98% military-enlisted college students or their spouses/dependents. There are about 2.5 million in the armed forces and if they can continue their growth rate to even a small 5% of that crowd then they will be massively successful and wildly profitable. They have 45k students now and so it wouldn’t be unreasonable to say that 100k would be within reach in a few years.
Disclosure: I’m long APEI with a small 100 share lot and looking to get another few hundred on pullbacks.
“It’s really not any different than traditional brick-and-mortar schools that have been raising tuition prices along with the expansion of student loans. Do you really think costs for a traditional “non-profit” school has been rising at 20-30% per year? I can guarantee you they aren’t giving their employees those kinds of raises.”
You are correct about the raises (with the exception of administrators, of course). Costs are certainly rising. States are not funding schools. We are the largest public college in VA. We get 60 cents on the dollar for every dollar UVA gets from the Commonwealth. Adjusting for cost of living, we are in the bottom 5% of our peers.
But take a look at the quality of APOL faculty and the quality of faculty at any 3rd tier university. No comparison. Where would you send your kids? People who cannot get admitted to even 3rd tier schools are getting lured by these exorbitant claims by the schools like APOL, where graduation rates are about 4%.
Great post and great comments. Reading through the comments just reminds me, it’s not if the financials are worth zero, it is more about how long they will get away with telling us they are now profitable.
Congratulations on the dead on call Idan. I strongly believe that there will be a slight pullback on Monday for consolidation only. GS will release earnings on 4-14, JPM on 4-16, C on 4-17, BAC on 4-20 and WFC on 4-22. All these banks will take advantage of the m2m and most likely beat the estimated earnings which will result a rally. The pullback may happen after all of these earnings but the evaluation of the bank stress test is to be released on month end. Govt intervention and manipulation will show that big banks will pass the stress test. Passing the stress test will cause another rally. Unless M. Whitney actually appears in CNBC again and inform that the normal public is manipulated I really do not see a big pullback happening anytime soon.
Any feedbacks will be greatly appreciated.
C and BAC will have crappy earnings and their stock will have risen beforehand on the coat-tails of GS and WFC. Shorting prior to C and BAC is a good move.
By the way, two months ago I said that WFC would lie about earnings. It will take just a little more time before that is discovered and cause great problems (sorry for what seems like magic 8-ball talk). For the record, I will say “speculation and first amendment right apply).
thanks for the feedback
El Guru,
I agree that we will most likely rally due to the banks putting a postive spin on their earnings next week. But it all depends on how you define a “big pullback” and the word “soon”. I think we dip Monday and then continue up on Tues and reach the 880 s&p range, max 915 before having a big move down. I think we can then head back down to the 800 to 820 range from there before continuing its uptrend. Going back to how you define a big move. To me roughly 80 points in the s&p is a big down move when you are holding onto positiions for short periods of time. It’s not a big move when comparing it to the likes of what was it 10+ consecutive down days reaching the lows of 666 but a big enough down move nonetheless. Its a move big enough to make a good profit or to severly cripple your account. As far as the word soon goes, many on this board daytrade so its kind of vague. But I can certainly see the market make this decent sized move the wk of the 20th which some would call soon and to daytraders ages away. As far as the stress test goes, I dont think all the banks will pass it or the public will look at it as the gov spitting out a bunch of bs. But most if not all of the “major” ones will look to be in good shape. Some have to fail and it will be the little ones in trouble that we have heard of but dont bank there. The ones that probably wont effect the market too significantly. Its the governments “psychological stimulus” plan to have most of them pass.
….so many views….. up to 865 …….. complete down week ending 805
Hey Richard,
I dont disagree with your numbers. When I said 880 “range” I actually favor 880 or a little lower so I’d be cool with 865. I usually start scaling in a bit before my mark so 870 is where I planned on starting at. I just mentioned the 915 mark max because so many people are calling for a move to s&p 1000 which it may reach eventually on this bear market rally but I dont see it going over 915 on this run without having a big retracement. But I dont think 915 will even come into play on this run unless they come up with some crazy news and/or earnings next week.
Dip down to 835 or 840 on Monday, Up Tuesday and Wednesday to 865-870 due to GS and JPM, and then the down leg begins. My prediction.
Mohan – did you give up on SHLD shorts?
For now, yes – I have given up on Sears short.
Just to have a pulse read on retail stocks, I visited the mall, Kohls and some other retail stores in the last few days. Even during week days the stores are buzzing with a lot of activity – totally different scene from a month ago.. I think some retail stocks may still have upside. Sears is one of them
Great Post Mohan. If we have perfect timings then we donot have to have our day jobs
I have been seriously thinking about getting an MBA (only top tier-if I can get in). I have no intentions to make BIGGA BUCKS with an MBA-it is more for personal satisfation. Maybe, this is the right time !
I am in the tech sector (enginering sales) and I donot understand the recent runup either. Our pipeline has dried up a lot and unless money falls from the sky I donot see how this rally can be justified.
the banks really stuck it in our ass last week. But we will live to fight another day.
The banks will get what is coming to them. they created structures that blew up the market, and now are without structures to replaces that ability to extend/create leveraged credit = CDOs. they don’t have the leverage/juice/structures to loan like they used to…
they are f’ed
Long Live FAZ!! Haha.