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Stock Strategist

Education Stocks Offer a Lesson in Defense

These companies can endure or even benefit from market turmoil.

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In tough economic times like these, it can be hard to find companies or industries that may see a positive impact from current conditions. Investors often think that every stock is going down and there are no good places to put their money. However, there are some companies and industries that are defensive in nature and may even benefit from the slowing economy.

One industry to consider is the education industry. First off, many companies in the industry have little or no debt. With all of the credit tightening going on in the market today, an unlevered company is a lot less risky than a highly levered one, making education stocks a defensive investment. Investment needs are also quite low in the industry. It's important to keep in mind that for-profit education firms do not have expensive dorms or football stadiums that need to be built and financed. Leasing office space or building a large mechanic training garage is about as intensive as the investing gets. Tuition is paid at the beginning of the semester, so working capital financing needs are rare. Because debt is low and the need to take on additional debt is minimal at best, education companies are able to escape many of the issues, but not all (we will get to that in a minute), regarding the credit crisis.

Todd Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.