The Coming Education Boom
Matt is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With election fever finally dying down, it is time to take stock of the various promises made throughout Barack Obama's campaign to search for future investing opportunities. What immediately jumps out at me, as a consistent basis of his rhetoric at speeches and debates, is the future of education spending in America. Assuming the president re-elect follows through on his promises, the United States may be seeing an unprecedented education boom over the next four years.
New Education Policies
A few months ago, President Obama declared that increasing education funding will be one of his highest priorities in his second term. With the election finally ending, we can expect the president re-elect to follow through on his promise to invest $30 billion of federal funds into hiring as many as 40,000 new teachers as well as retaining many more. This means that we will see a nationwide expansion of mostly secondary, but also some primary education schools. On top of this, Obama has pledged to spend billions more on boosting the US’s fledgling science and math scores with direct federal grants to targeted districts throughout the country.
But this may just be the tip of the education boom iceberg. We could be seeing another burst of growth in higher education as the government continues to expand its student loan subsidies. Even before the election, Obama set in motion plans to revamp the structure of national student loans. Many analysts have speculated that higher education is already a growing bubble set to pop, but Obama's new policies should at least delay this threat for years to come. Specifically, Obama’s plan (which should start to take effect within months) is to limit students’ debt repayments to 15% of their non-discretionary income (regardless of how much their income may be) each year. On top of this, after twenty years of continuous payment, all remaining debt will be cancelled.
The effect of this plan is pretty obvious, another huge boost in demand for university and college space as new students flood dorms and lecture halls. While the top colleges today may cost in excess of $200,000 over four years (just ask me, a current student at the University of Chicago), but why does that matter to a student who attains a sociology degree and subsequently two decades of substandard wages which reduce his real education costs into the quadruple digits?
What this Means for Investors
These new education policies present a great opportunity for investors to go long on education suppliers who will soon be servicing expanding schools across the country. New paper, printers, pencils, pens, desks, chairs, tables, computers, calculators, folders, and binders (probably not full of women) will be purchased by school districts and colleges to accommodate such a massive influx of new money and personnel.
Thus the big winners will be Office Depot (NYSE: ODP), Office Max (NYSE: OMX), and (ironically) Staples (NASDAQ: SPLS) all of which should be seeing sizeable revenue increases over the next few years. These three companies represent the lion's share of the office supply market with each individual company making about 60-65% of its revenue from basic office supplies (pens, pencils, desks, chairs, etc.), plus about another 15-30% from technology sales (printers, computers, etc.). Admittedly these companies are looking to diversify due to the highly competitive nature of the office supplies market, but they are still in the best position to capture this new demand.
Another more targeted play is Smart Technologies (NASDAQ: SMT), a leading developer of interactive hardware like SMART Boards and SMART Projectors which have become increasingly popular in classrooms as an alternative to traditional blackboards and PowerPoint slides. Since 2007, SMT has sold and installed over 1.3 million SMART Boards around the world, and aside from a slight slump in sales last year, there is no reason to believe SMART Boards won't become a basic staple of all K-12 classrooms someday. SMT will especially benefit from the federal targeted science and math grants due to their specific applications in these subjects.
Given the nature of education funding, it is likely that these are long term plays. The President has declared education expansion to be a cornerstone of his second term, and therefore these stocks should see a nice revenue booster for at least the next few years.
Dormin123 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.