Don't get on the wrong side of Congress or you will end up doing a perp walk of sorts to the televised testimony table.

Editor's Note:

Apollo Group (APOL) is one of a group of for-profit colleges that were recently taken out behind the proverbial woodshed and beaten like a rented mule. I looked at several in the sector for tonight's new play and I picked Apollo because it closed today at a new 11 year low at $26.

This once high flyer has traded as high as $98 but the fortunes of education have turned against them. The Great Recession and high unemployment have taken millions of people out of the candidate pool for a for-profit education. The government is tightening the criteria for admission or more correctly for government funding of their admission.

This sector is under serious pressure both economic and regulatory and I don't see it ending any time soon.

James is on vacation this week.


No new Longs today


Apollo Group - APOL - close: 26.03 change: -.59

Stop Loss: 28.60
Target(s): 21.00
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Apollo is a for-profit education company. The companies have been trashed recently and the release of a Senate report last week was especially harsh on the group. Included in that group are APOL, BPI, COCO, DV, STRA and LOPE.

The Senate report (249 pages) said these colleges failed to give students a reasonable bang for their bucks. Since they are all taxpayer funded that means we are paying for their education.

Unfortunately 64% of students trying to get an associate's degree end up dropping out. The colleges spend nearly 25% of their revenue on marketing and basically dragging any candidate with a pulse into the program to get Federal funding for that student. Because the students are lobbied so heavily to sign up there is an inordinate number that give up quickly as opposed to those attending a regular college because they want to be there. Degrees at these for-profits cost an average of 19% more than at regular schools.

The report found that the average salary of an executive at these colleges was $7.3 million a year. This makes me want to go teach investment education somewhere but I bet teachers are closer to minimum wage.

The Federal government ends up paying 80% of the tuition bill at these colleges as a result of various student loan programs and veteran programs.

The report urged stronger rules, additional oversight and requirements for graduation in order to obtain funding. Basically these colleges have run into a buzz saw of lawmaker hostility. Odds are good there will be additional regulation and scrutiny of their admission procedures.

Apollo is trading at an 11 year low.

I am recommending a short of APOL with a trigger of 25.75. I want to see a new low as an entry point.

Trigger @ 25.75

Suggested Position: Short APOL stock @ $25.75


Buy APOL Sept $25 Put, currently $1.58.

APOL Chart

APOL Chart

Entry on Aug xx at $ xx.xx
Earnings Date 09/24/12
Average Daily Volume = 1.7 Million
Listed on August 2, 2012