Key points
- This is how some professional traders and investors choose the sectors and stocks they want to add to their portfolios.
- By ending up with a list of the three best educational titles in the industry, you too can position the odds in your favor.
- Analysts are optimistic about their projections and markets have taken them well, offering stocks higher.
- 5 actions we like best about Duolingo
Most traders and retail investors, i.e. those who trade with their own money, often wonder how professionals manage to choose stocks and sectors from the thousands of names available for daily trading.
The first thing these professionals, those who trade other people’s money (whether at a fund or an investment bank), look for to develop their portfolio ideas begins with a process called “top-down” research. That’s a fancy way of saying that they start with a zoomed-in view of what’s happening in an economy and drill down to end up with specific stocks to potentially buy or sell.
To save you the endless hours and rabbit holes this process can take, MarketBeat has done its homework to bring you the specific highlights happening in the education sector and why unexpected names like Alphabet NASDAQ:GOOGL, Coursera NYSE: COURTand even Duolingo NYSE:DUOL could be the place to start looking to make a decent profit from the market.
Mechanics at work
One of the things these traders look for is economic activity within a given space, such as increases in employment or overall business activity. When it comes to the educational services space, these professionals have been able to spot these and other trends that require a closer look into it.
One widely followed indicator that can point you in this direction is the ISM Services PMI report, which comes out every month to provide information on the business services sector of the U.S. economy. The latest quarter of reporting will show that education services saw their first success in January, piquing the curiosity of researchers.
Growth is one of the factors every investor is looking for today, especially with the uncertainty surrounding the timing of the Fed’s interest rate cuts. This may push most market participants to look for companies that are relatively immune to the economic cycle but still offer justifiable reasons to achieve above-average growth.
If you were – maybe you are – a manager or an entrepreneur, are there many other reasons to go on a hiring spree other than the expectation of an increase in business soon? That’s probably what’s going through the minds of hiring managers in the industry, which has added a significant chunk of jobs in the past month.
The Jobs Report (better known as NFP) reported that 353,000 jobs were added to the U.S. economy in January. Educational services and businesses represent 112 thousand jobs, equal to 31.7% of the total! Taking up nearly a third of all jobs it’s nothing to ignore without taking another look.
Please remember that these are not public education services but rather private education. Knowing what you know now, wouldn’t it make sense for these traders to start looking for the best of the best stocks in that space?
Only the best
Let’s say your portfolio needs the stability of a large, diversified business to get the exposure you likely now want to get in this space. If so, you might want to consider Alphabet on this list.
Better known as Google, this company hosts a comprehensive list of online training courses that anyone can take; Google certificates are now recognized as sufficient preparation to pass job interviews. What a time to be alive!
Additionally, this is considered a blue chip stock in the outperforming technology stocks sector, so you get the best of all worlds with this one. Let’s assume your portfolio can afford a little more volatility (and upside potential for the same reason). A more direct approach to bespoke education platforms might be your cup of tea today.
Taking the technology services sector as a whole into consideration, two things will become very important in identifying positive outliers that may require investment dollars. First, earnings per share growth is set by analysts, and the forward P/E ratio is how the market places a value today on tomorrow’s expected earnings.
On average, the space is expected to grow its EPS by 32.9%. In contrast, Duolingo analysts expect growth of 211.5% for the next twelve months. This may be why markets are willing to pay a forward P/E of 120.1x, a 426.0% premium over the industry average of 22.9x.
“It has to be expensive for a reason” applies here, and now you know why. The story rhymes with Coursera stock, as analysts see a 300.0% increase in EPS for this year. This is also why markets reward this stock with its Forward P/E valuation of 111.1x, a 386.0% premium to the sector.
Considering these stocks are a far cry from today’s 52-week high prices, while the rest of the tech sector (the NASDAQ) continues to flirt with breaking out of all-time highs, it may be a matter of time before this performance gap is closed . closed by an influx of professional investors.
Before considering Duolingo, you’ll want to hear this.
MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Duolingo wasn’t on the list.
While Duolingo currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.
View the five stocks here
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