A professional investor tells us where he’d put his money. This week: Guillaume Uettwiller of the CPR Global Thematic Equities team picks his three favourite education stocks.
Education is a rapidly growing $5trn industry undergoing constant change. Population growth and the expansion of the middle class in emerging markets are producing a large contingent of new students, especially in countries such as China and India. Considerable investments will have to be made all over the world to meet burgeoning demand, with countries increasingly turning to private-sector provision of formal education to help compensate for the dearth of public funding. In addition, automation and digitalisation in the labour market are forcing a massive shift in the skills needed in the workplace, so lifelong training and career development are promising new areas. For long-term investors, the industry could provide diversification and attractive returns.
Education is a sector ripe for digital disruption
Education technology (EdTech) represents a unique and early-stage opportunity. While most learning and teaching models have barely evolved for the past century, digital technology is finally poised to disrupt education. From pre-school through post-secondary and into corporate and lifelong learning, EdTech has the potential to transform how we learn, making education more accessible, personalised and affordable.
In this context, we like Chegg (NYSE: CHGG), a “one-stop shop” learning-platform provider of student services ranging from online tutoring and textbook rentals to scholarships. The company successfully shifted to a fully digital business model in 2017. It can now boost growth as it increases its penetration of the US market (today it has roughly 9% of the total available market) and bundles its services together in package deals.
Online tutoring in China
Opportunities are even more plentiful in developing countries. The Chinese after-school tutoring market is set to continue growing in the double-digits as it benefits from favourable demographics, rising disposable incomes and heightened competition for top universities.
Over the past five years, China’s TAL Education (NYSE: TAL) has been expanding its learning-centre network rapidly, capitalising on its strong brand recognition to gain market share. Offline growth has so far been the key to overall expansion, but online education should become the major driver in the coming years. TAL Education’s online services already have 2.4 million students, with enrolments increasing by 223% year-on-year last quarter. The online divisions could account for a fifth of sales by 2020.
Student housing has strong foundations
Lastly, consider the student housing industry, a defensive asset class offering compelling opportunities all over the world. Unite Group (LSE: UTG) is Britain’s largest listed student accommodation owner and developer. Unite Group has the longest operating track record in the sector, and the company is well positioned to continue winning university partnerships. The industry backdrop remains supportive: the numbers enrolling in prestigious universities are on the rise and there are three times more first-year students than there are available beds.